Assume that Western Exploration Corp. is considering the acquisition of Ogden Drilling Company. The latter has a $510,000 tax loss carryforward. Projected earnings for the Western Exploration Corp. are as follows: 2013 2011 2012 Total Values Before-tax income $200,000 $320,000 $735,000 257,250 $215,000 75,250 Taxes (35% 70,000 112,000 $139,750 $208,000 $477,750 $130,000 Income available to stockholders a. How much will the total taxes of Western Exploration Corp. be reduced as a result of the tax loss carryforward? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Reduction in taxes b. How much will the total income available to stockholders be for the three years if the acquisition occurs? (Do not round intermediate calculations and round your answers to the nearest whole dollar.) 2013 Total 2011 2012 Income available to stockholders General Meters is considering two mergers. The first is with Firm A in its own volatile industry, the auto speedometer industry, while the second is a merger with Firm B in an industry that moves in the opposite direction (and will tend to level out performance due to negative correlation) General Meters Merger General Meters Merger with Firm A with Firm B Possible Possible Earnings ($in millions) 35 Earnings ($ in millions) 35 Probability Probability 0.20 0.15 40 0.40 40 0.50 0.40 45 45 0.35 a. Compute the mean, standard deviation, and coefficient of variation for both investments. (Do not round intermediate calculations Enter your answers in millions. Round "Coefficient of variation" to 3 decimal places and "Standard deviation" to 2 decimal places.) Merger A Merger B Mean Standard deviation Coefficient of variation b. Assuming investors are risk-averse, which alternative can be expected to bring the higher valuation? OMerger A Merger B Assume that Western Exploration Corp. is considering the acquisition of Ogden Drilling Company. The latter has a $510,000 tax loss carryforward. Projected earnings for the Western Exploration Corp. are as follows: 2013 2011 2012 Total Values Before-tax income $200,000 $320,000 $735,000 257,250 $215,000 75,250 Taxes (35% 70,000 112,000 $139,750 $208,000 $477,750 $130,000 Income available to stockholders a. How much will the total taxes of Western Exploration Corp. be reduced as a result of the tax loss carryforward? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Reduction in taxes b. How much will the total income available to stockholders be for the three years if the acquisition occurs? (Do not round intermediate calculations and round your answers to the nearest whole dollar.) 2013 Total 2011 2012 Income available to stockholders General Meters is considering two mergers. The first is with Firm A in its own volatile industry, the auto speedometer industry, while the second is a merger with Firm B in an industry that moves in the opposite direction (and will tend to level out performance due to negative correlation) General Meters Merger General Meters Merger with Firm A with Firm B Possible Possible Earnings ($in millions) 35 Earnings ($ in millions) 35 Probability Probability 0.20 0.15 40 0.40 40 0.50 0.40 45 45 0.35 a. Compute the mean, standard deviation, and coefficient of variation for both investments. (Do not round intermediate calculations Enter your answers in millions. Round "Coefficient of variation" to 3 decimal places and "Standard deviation" to 2 decimal places.) Merger A Merger B Mean Standard deviation Coefficient of variation b. Assuming investors are risk-averse, which alternative can be expected to bring the higher valuation? OMerger A Merger B
