1 of 4 Set 1 UIBS United International Business Schools Class Work Mergers and Acquisitions 1. Rudy's, Inc. and Blackstone, Inc. are all-equity firms. Rudy's has 1,500 shares outstanding at al market price of $22 a share. Blackstone has 2,500 shares outstanding at a price of $38 a share. Blackstone is acquiring Rudy's for $36,000 in cash. What is the merger premium per share? 2. Winslow Co. has agreed to be acquired by Ferrier, Inc. for $25,000 worth of Ferrier stock. Ferrier currently has 1,500 shares of stock outstanding at a price of $21 a share. Winslow has 1,000 shares outstanding at a price of $22. The incremental value of the acquisition is $4,000. What is the merger premium per share? 3. Brite Industries has agreed to r with Nu-Day, Inc. for $20,000 worth of Nu-Day stock. Brite has 1,200 shares of stock outstanding at a price of $15 a share. Nu-Day has 2,000 shares outstanding with a market value of $19 a share. The incremental value of the acquisition is $3,500. What is the value of Nu-Day after the merger? 4. Firm A is being acquired by Firm B for $24,000 worth of Firm B stock. The incremental value of the acquisition is $3,500. Firm A has 1,500 shares of stock outstanding at a price of $15 a share. Firm B has 1,200 shares of stock outstanding at a price of $30 a share. What is the value per share of Firm B after the acquisition? 5. Firm A is planning on merging with Firm B. Firm A will pay Firm B's stockholders the current value of their stock in shares of Firm A. Firm A currently has 2,300 shares of stock outstanding at a market price of $20 a share. Firm B has 1,800 shares outstanding at a price of $15 a share. What is the value of the merged firm? 6. Firm V was worth $450 and Firm A had a market value of $375. Firm V acquired Firm A for $425 because they thought the combination of the new Firm VA was worth $925. B) 8.36% C) 8.72% D) 12.72% a) What is the merger Premium from the merger of Firm V and Firm A? b) What is the net present value from the merger of Firm V and Firm A? 7. What is the expected return on a stock with a beta of 1.09, a market risk premium of 8%, and a risk-free rate of 4%? A) 4.36% Set 2 True or False 1) Negatively correlated assets reduce risk more than positively correlated assets. 2) Investing globally offers better diversification than investing only domestically. Multiple Choice Questions 3) If there is no relationship between the rates of return of two assets over time, these assets are A) positively correlated. B) negatively correlated. C) perfectly negatively correlated. D) uncorrelated. True or False 4) It is important to explore the company's beta before a merger move. 5) A negative beta means that on average a stock moves in the opposite direction of the market. 6) A stock with a beta of 1.3 is less risky than a stock with a beta of 0.42. 7) Adding stocks with higher standard deviations to a portfolio will necessarily increase the portfolio's risk. Multiple Choice Questions 8) Which one of the following types of risk cannot be effectively eliminated through portfolio diversification? A) inflation risk B) labor problems C) materials shortages D) product recalls 9) Systematic risks A) can be eliminated by investing in a variety of economic sectors. B) are forces that affect all investment categories. C) result from random firm-specific events. D) are unique to certain types of investment. 10) A stock's beta value is a measure of A) interest rate risk. B) total risk. C) systematic risk. D) diversifiable risk. 11) The beta of the market is A) -1.0. B) 0.0. C) 1.0. D) undefined. 12) When stock market has bottomed out and is beginning to recover, the best portfolio to own is the one with a beta of A) 0.0. B) +0.5. C) +1.5. D) +2.0. 13) The best stock to own when the stock market is at a peak and is expected to decline in value is one with a beta of A) +1.5. B) +1.0. C) -1.0. D) -0.5. 14) The market rate of return increased by 8% while the rate of return on XYZ stock increased by 4%. The beta of XYZ stock is A) -2.0. B) -0.40. C) 0.50. D) 2.0. True or False 15) In the Capital Asset Pricing Model, beta measures a stock's sensitivity to overall market returns. 16) According to the CAPM, the required rate of a return on a stock can be estimated using only beta and the risk-free rate. Questions 17) You have gathered the following information concerning a particular investment and conditions in the market. Risk Free: 2.5% Market Rate: 11% Beta 1.35 Risk-free rate Market return Beta of investment 2.5% 11.0% 1.35 According to the Capital Asset Pricing Model, the required return for this investment is A) 8.85%. B) 11.48%. C) 13.98%. D) 14.85%.