Could you send me the answers to this, you already did in another question.

MGT 181 - Professor Gerans Mergers & Acquisitions Case DUE MARCH 17TH, 2016 BEFORE YOUR FINAL EXAM (11:30 AM) Instructions: With a group of 6 people MAX, please complete this case on excel. On one sheet have your answers. On another sheet, please show your work. Mini Cases: 1. On January 1, 2008, Tenant Company leased office space from Landlord Inc. for 5 years at $75,000 per month. On that same date, Tenant made the following payments to Landlord: First month's rent $75,000 Last month's rent 75,000 Security deposit 100,000 Lease improvements 1,500,000 The leasehold improvements include build-out costs to install office walls, restrooms, and a kitchen. Tenant allocates the cost of the leasehold improvements over the lease term using the straight-line method. What amount of total lease expense should Tenant report for the year ended 2008 and what is the balance of all of the lease related assets on December 31, 2008, assuming the lease payments are made on the first day of each month? Lease expense Lease related assets A) $1,200,000 $1,375,000 B) $1,200,000 $1,200,000 C) $375,000 $1,375,000 2. Silver Enterprises has acquired All Gold Mining in a merger transaction. The following balance sheets represent the premerger book values for both firms. Assume the merger is treated as a purchase for accounting purposes. The market value of All Gold Mining's fixed assets is $3,800; the market values for current and other assets are the same as the book values. Assume that Silver Enterprises issues $5,000 in new long-term debt to finance the acquisition. The post-merger balance sheet will reflect goodwill of _____ and total equity of _____. A. $640; $2,700 B. $640; $4,610 C. $890; $2,700 D. $890; $4,610 E. $890; $5,500 3. Merger Terms; define each of the following terms: a. Greenmail. b. White knight. c. Golden parachute. d. Crown jewels. e. Shark repellent. f. Corporate raider. g. Poison pills. h. Tender offer i. Leveraged buyout or LBO. 4. Merger Rational; explain why diversification per se is probably not a good reason for merger. 5. Corporate split; during 2008, Time Warner was in the middle of a proposed corporate split that is expected to complete by the end of the year. The company, which had grown in large part off because of acquisitions, was discussing a plan to separate into three divisions. Time Warner would spin off both AOL and its cable TV business and retain its cable network, entertainment, and publishing operations. Why might a company do this? Is there a possibility of reverse synergy? 6. Hostile Takeover; what types of actions might the management of a firm take to fight a hostile acquisition bid from an unwanted suitor? How do the target firm shareholders benefit from the defensive tactics of their management team? How are the target firm shareholders harmed by such actions? Explain. Questions & Problems: 1. Balance Sheets for Mergers; Consider the following premerger information about the Firm X and Firm Y: Firm X $ 91,000 Firm Y $ 13,000 Shares outstanding Per-share values: Market Book 40,000 15,000 $ 54 $ 14 $ 17 $ 4 Merger premium $ 6 Total earnings Assume that Firma X acquires Firma Y by paying cash for all the shares outstanding at a merger premium of $6 per share. Assuming that neither firm has any debt before or after the merger, construct the postmerger balance sheet for Firm X assuming the use of (a) pooling of interests accounting methods and (b) purchase accounting methods. 2. Balance Sheets for Mergers; Assume that the following balance sheets are stated at book value. Construct a postmerger balance sheet assuming that Meat Co. purchases Loaf, Inc. and the pooling of interests method of accounting is used. Meat Co. Current assets Net fixed assets Total Current assets $12,000 $36,000 Current liabilities Long-term debt Equity $ 48,000 32,900 $48,000 Loaf, Inc. Current liabilities $3,400 Net fixed assets $5,300 9,800 6,400 Long-term debt $1,300 1,900 Equity Total $9,800 6,600 $ 9,800 3. Incorporating Goodwill; In this problem (lower part shown), suppose the fair market value of Loaf's fixed assets is $9,300 versus the $6,400 book value shown. Meat pays $16,000 for Loaf and raises the needed funds through an issue of long-term debt. Construct the postmerger balance sheet now, assuming that he purchase methods of accounting is used. Current assets Net fixed assets Total Current assets Net fixed assets Total $ $ $ Meat Co. Current liabilities Long-term debt Equity 12,000 36,000 48,000 $ 48,000 $ 3,400 $ 6,400 Loaf, Inc. Current liabilities Long-term debt Equity $ 9,800 $ $ 9,300 16,000 Balance Sheet for Mergers; Silver Enterprises has acquired All Gold Mining in a merger transaction. Construct the balance sheet for the new corporation if the merger is treated as a pooling of interest for accounting purposes. The following balance sheets represent the merger book value for both firms: Current assets $ 4,800 Other assets Net fixed assets Total Current assets Other assets Net fixed assets Total 5. $1,300 $1,900 $6,600 $9,800 Fair market value Paid 4. $ 5,300 $ 9,800 $ 32,900 Silver Enterprises Current liabilities 1,200 15,300 Long-term debt Equity $21,300 $1,300 $8,610 $ 2,800 7,500 11,000 $21,300 All Gold Mining Current liabilities 510 Long-term debt 6,800 Equity $1,350 0 7,260 $8,610 Incorporation Goodwill; In the previous problem (see below) , construct the balance sheet for the new corporation assuming that the transaction is treated as a purchase for accounting purposes. The market value of All Gold mining's fixed assets is $8,700; the market value for current and other assets are the same as the book values. Assume that Silver Enterprises issues $13,000 in new long-term debt to finance the acquisition. Current assets Other assets $ 4,800 Silver Enterprises Current liabilities 1,200 Long-term debt $ 2,800 7,500 Net fixed assets 15,300 Total Current assets Other assets Net fixed assets $21,300 $1,300 Total 6. 11,000 $21,300 All Gold Mining Current liabilities 510 Long-term debt 6,800 Equity $8,610 $1,350 0 7,260 $8,610 Cash versus Stock Payment; Penn Corp. is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total after-tax annual cash flows by $2 million indefinitely. The current market value of Teller is $43 million, and that of Penn is $89 million. The appropriate discount rate for the incremental cash is 10%. Penn is trying to decide whether it should offer 40% of its stock or $61 million in cash to Teller's shareholders. a. What is the cost of each alternative? b. What is the NPV of each alternative? c. Which alternative should Penn choose? After-tax annual cash flow Teller market value Penn market value Discount rate Stock offer Cash offer 7. Equity $ 2,000,000 $ 43,000,000 $ 89,000,000 10% 40% $ 61,000,000 EPS, PE, and Mergers; The shareholders of Jolie Company have voted in favor of a buyout offer from Pitt Corporation. Information about each firm is given here: Jolie Price-earnings ratio Shares outstanding Earnings Shareholders receive 8. Pitt 13.50 21.00 90,000 $180,000 210,000 $810,000 1 for Cash versus Stock as Payment; Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have NO debt outstanding. Firm B Shares outstanding Firm T 5,400 Share price 1,500 $ 47.00 Synergy benefits Acquisition price d . 3 $ 8,700 $ 21.00 Shareholders receive $ 19.00 1 for 2 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $8,700. a. If Firm T is willing to be acquired for $21 per share I cash, what is the NPV of the merger? b. What will the price per share of the merged firm be assuming the conditions in (a)? c. In part (a), what is the merger premium? d. Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers one of its shares for every two of T's shares, what will the price per share of the merged firm be? e. What is the NPV of the merger assuming the conditions in (d)? 9. Cash versus Stock as Payment; in problem 9, are the shareholders of Firm T better off with the cash offer or the stock offer? At what exchange ration of B shares to T shares would the shareholders in T be indifferent between the two offers? Firm B Shares outstanding Share price d . $ 47.00 Synergy benefits Acquisition price Firm T 5,400 $ 8,700 $ 21.00 Shareholders receive 1,500 $ 19.00 1 for 2 10. Effect of a Stock Exchange; consider the following premerger information about the Firm A and Firm B: Firm A Total earnings Shares outstanding Price per share Acquisition price Firm B $ 2,100 $ 600 1,000 $43 200 $47 $49 Assume that Firm A acquires Firm B via an exchange of stock at a price of $49 for each share of B's stock. Bothe A and B have NO debt outstanding. a. What will the earnings per share (EPS) of Firm A be after the merger? b. What will Firm A's price per share be after the merger if the market incorrectly analyzes this reported earnings growth (that is, the price-earnings ratio does NOT change)? c. What will the price-earnings ratio of the postmerger firm be if the market correctly analyzes the transaction? d. If there are NO synergy gains, what will the share price of A be after the merger? What will the price-earnings ratio be? What does your answer for the share price tell you about the amount A bid for B? Too low? Explain. 11. Merger NPV; Fly-By-Night Couriers is analyzing the possible acquisition of Flash-in-the Pan Restaurants. Neither firm has debt. The forecasts of Fly-By-Night show that the purchase would increase its annual after-tax cash flow by $35,000 indefinitely. The current market value of Flash-in-the-Pan is $9 million. The current market value of Fly-By-Night is $23 million. The appropriate discount rate for the incremental cash flow is 8%. Fly-ByNight is trying to decide whether it should offer 35% of its stock or $12 million in cash to Fly-in-the-Pan. a. b. c. d. e. What is the synergy from the merger? What is the value of Flash-in-the Pan to Fly-By-Night? What is the cost to Fly-By-Night of each alternative? What is the NPV to Fly-By-Night of each alternative? Which alternative should Fly-By-Night use? Incremental after-tax cash flows Flash-in-the-Pan market value Fly-by-Night market value $ 350,000 $ 9,000,000 $ 23,000,000 Discount rate Stock offer Cash offer 8% 35% $12,000,000 12. Merger NPV; Harrods PLC has a market value of $125 million and 5 million shares outstanding. Selfridge Department Store has a market value of $40 million and 2 million shares outstanding. Harrods is contemplating acquiring Selfridge. Harrods' CFO concludes that the combined firm with synergy will be worth $185 million, and Selfridge can be acquired at a premium of $10 million. a. If Harrods offer 1.2 million shares of its stock in exchange for the 2 million shares of Selfridge, what will the stock price of Harrods be after the acquisition? b. What exchange ratio between the two stocks would make the value of a stock offer equivalent to a cash offer of $50 million? Harrod's market value $125,000,000 Harrod's shares outstanding 5,000,000 Selfridge market value $40,000,000 Selfridge shares outstanding Combined firm value Merger premium a . b . 2,000,000 $185,000,000 $10,000,000 Shares offered 1,200,000 Cash offer c. $50,000,000 Calculating NPV; BQ, Inc. is considering making an offer to purchase Report Publications. The vice president of finance has collected the following information: BQ Price-earnings ratio Shares outstanding Earnings Dividends c. e. g. iReport 14.50 1,300,000 $ 3,900,000 $ 950,000 9.20 175,000 $ 640,000 $ 310,000 Analyst growth rate Management growth rate Cash offer Shares offered Consultant growth rate 5% 7% $38.00 200,000 6% BQ also knows that securities analysts expect the earnings and dividends of Report to grow at a constant rate of 5% each year. BQ management believes that the acquisition of Report will provide the firm with some economies of scale that will increase this growth rate to 7% per year. a. What is the value of Report to BQ? b. What would BQ's gain be from this acquisition? c. If BQ were to offer $38 in cash for each share of Report, what would be the NPV of the acquisition be? d. What's the most BQ should be willing to pay in cash per share for the stock of Report? e. If BQ were to offer 200,000 of its share in exchange for the outstanding stock of Report, what would the NPV be? f. Should the acquisition be attempted? If so, should it be as in (c) or as in (e)? g. BQ's outside financial consultants think that the 7% growth rate is too optimistic and a 6% rate is more realistic. How does this change your previous answers