Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Sweet Cola Corporation ( SCC ) is bidding to take over Salty Dog Pretzels ( SDP ) . SCC has 2 , 5 0 0

Sweet Cola Corporation (SCC) is bidding to take over Salty Dog Pretzels (SDP). SCC has 2,500 shares outstanding, selling at $40 per
share. SDP has 1,500 shares outstanding, selling at $16.50 a share. SCC estimates the economic gain from the merger to be $11,000.
a. If SDP can be acquired for $20 a share, what is the NPV of the merger to SCC?
b. What will SCC sell for, per-share, when the market learns that it plans to acquire SDP for $20 a share?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
c. What will SDP sell for, per share, if the market learns about the acquisition?
d. What are the percentage gains to the shareholders of each firm?
Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.
e. Now suppose that the merger takes place through an exchange of stock. On the basis of the premerger prices of the firms, SCC
sells for $40, so instead of paying $20 cash, SCC issues 0.50 of its shares for every SDP share acquired. What will be the price
of the merged firm?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
f. What is the NPV of the merger to SCC when it uses an exchange of stock?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
image text in transcribed

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

The Psychology Of Trading Tools And Techniques For Minding The Markets

Authors: Brett N. Steenbarger

1st Edition

0471267619, 9780471267614

More Books

Students also viewed these Finance questions

Question

9.12 Explain the purposes of the alternative minimum tax.

Answered: 1 week ago

Question

Define recruitment.

Answered: 1 week ago

Question

Identify external recruitment sources.

Answered: 1 week ago