Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Case Corp in considering acquiring Western Tech. Their current stock price, number of shares outstanding and balance sheets are below: Assets $7 million Debt $2

Case Corp in considering acquiring Western Tech. Their current stock price, number of shares outstanding and balance sheets are below:

Assets

$7 million

Debt

$2 million

Equity $5 million

(200,000 shares at $25 each)

Assets

$60 million

Debt

$10 million

Equity $50 million

(1M shares at $50 each)

Case Corp (pre-deal) Western Tech

Case Corp closing price: $50 Western Tech closing price: $25 Shares outstanding: 1,000,000 Shares outstanding: 200,000

Suppose that Case Corp will announce the acquisition tomorrow, but is still unsure on how to finance the deal. Analyze the three scenarios below:

  1. What is the premium offered for the stock? (1 pts)
  2. Discuss why this premium may be different from the premium in the all-cash deal? (1 pts)
  3. How much will it cost Case Corp to finance this deal (buying all outstanding shares)? (1 pts)
  4. What is the exchange ratio? (1 pts)
  5. If you were a Western Tech shareholder and owned 25 shares, how many shares of Case Corp will you receive? (1 pts)
  6. Calculate Case Corps leverage ratio after acquiring Western Tech. Keep in mind that only new equity was issued to finance this deal. (1 pts)
  7. How many shares will Case Corp have to issue in order to finance this deal? (1 pts)
  8. Western Tech shareholders will now own shares of Case Corp. What percentage of ownership will Western Techs shareholders have over Case Corp? (1 pts)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managing Finance A Socially Responsible Approach

Authors: D. Crowther

1st Edition

0750661011, 978-0750661010

More Books

Students also viewed these Finance questions

Question

=+Creative strategy statement template Example

Answered: 1 week ago

Question

=+6. Why should they buy this product/service?

Answered: 1 week ago