Back Assignment Details FINC 5880 GA S1 2021 Advanced Corporate Finance Dear all, Answer the questions below: 1. Several reasons have been proposed to justify mergers and acquisitions. State and briefly explain any four of the reasons. Your explanations must include which of the reason (s) is economically justifiable? Which are not? 10marks 2. Using known examples in the world of business, briefly describe the differences between a hostile merger and a friendly merger. 5Marks 3.Na2Sam Inc. has decided to acquire a new market data and quotation system for its New York office. The system receives current market prices and other information from several on-line data services, then either displays the information on a screen or stores it for later retrieval by the firm's brokers. The system also permits customers to call up current quotes on terminals in the lobby. The equipment costs $1,000,000, and, if it were purchased, Na2Sam could obtain a term loan for the full purchase price at a 10 percent interest rate. Although the equipment has a six-year useful life, it is classified as a special-purpose computer, so it falls into the MACRS 3- year class. If the system were purchased, a 4-year maintenance contract could be obtained at a cost of $20,000 per year, payable at the beginning of each year. The equipment would be sold after 4 years, and the best estimate of its residual value at that time is $200,000. However, since real-time display system technology is changing rapidly, the actual residual value is uncertain. purchased, Na2Sam could obtain a term loan for the full purchase price at a 10 percent interest rate. Although the equipment has a six-year useful life, it is classified as a special-purpose computer, so it falls into the MACRS 3- year class. If the system were purchased, a 4-year maintenance contract could be obtained at a cost of $20,000 per year, payable at the beginning of each year. The equipment would be sold after 4 years, and the best estimate of its residual value at that time is $200,000. However, since real-time display system technology is changing rapidly, the actual residual value is uncertain. As an alternative to the borrow-and-buy plan, the equipment manufacturer informed Na2Sam that Consolidated Leasing would be willing to write a 4-year guideline lease on the equipment, including maintenance, for payments of $260,000 at the beginning of each year. Na2Sam's marginal federal-plus-state tax rate is 35 percent. You have been asked to analyze the lease-versus- purchase decision, and in the process to answer the following questions: 1. What is the present value cost of owning the equipment? 2. Explain the rationale for the discount rate you used to find the PV. 3. What is Na2Sam's present value cost of leasing the equipment? (Hint: again, construct a time line.) 4. What is the net advantage to leasing (NAL)? 5. Does your analysis indicate that Na2Sam should buy or lease the equipment? Explain. Total: 30marks
