The shareholders of Flannery Company have voted in favor of a buyout offer from Stultz Corporation. Information about each firm is given here: Flannery Stultz Price?earnings ratio 16.0 23 Shares outstanding 96,000 230,000 Earnings $ 180,000 $ 900,000 ________________________________________ Flannery?s shareholders will receive one share of Stultz stock for every three shares they hold in Flannery. a-1. What will the EPS of Stultz be after the merger? (Do not round intermediate calculations and round your final answer to 3 decimal places. (e.g., 32.161)) EPS $ a-2. What will the PE ratio be if the NPV of the acquisition is zero? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) PE b. What must Stultz feel is the value of the synergy between these two firms? (Do not round intermediate calculations.) Synergy value $ Bentley Corp. and Rolls Manufacturing are considering a merger. The possible states of the economy and each company?s value in that state are shown here: State Probability Bentley Rolls Boom .80 $ 328,000 $ 298,000 Recession .20 $ 129,000 $ 99,000 ________________________________________ Bentley currently has a bond issue outstanding with a face value of $144,000. Rolls is an all-equity company. a. What is the value of each company before the merger? (Do not round intermediate calculations.) Value of Bentley $ Value of Rolls $ ________________________________________ b. What are the values of each company?s debt and equity before the merger? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations.) Equity of Rolls $ Debt of Rolls $ Equity of Bentley $ Debt of Bentley $ ________________________________________ c. If the companies continue to operate separately, what are the total value of the companies, the total value of the equity, and the total value of the debt? (Do not round intermediate calculations.) Value of companies $ Value of equity $ Value of debt $ ________________________________________ d-1. What would be the value of the merged company? (Do not round intermediate calculations.) Merged company value $ d-2. What would be the value of the merged company?s debt and equity? (Do not round intermediate calculations.) Value of the company Value of debt $ Value of equity $ ________________________________________ e-1. How much would shareholders gain or lose in the merger? (Do not round intermediate calculations. Enter a gain as a positive number and a loss as a negative number.) Shareholders' gain or loss $ e-2. How much would bondholders gain or lose in the merger? (Do not round intermediate calculations. Enter a gain as a positive number and a loss as a negative number.) Bondholders' gain or loss $ The Sharpe Co. just paid a dividend of $1.90 per share of stock. Its target payout ratio is 40 percent. The company expects to have an earnings per share of $4.80 one year from now. a. If the adjustment rate is .2 as defined in the Lintner model, what is the dividend one year from now? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Dividend $ b. If the adjustment rate is .5 instead, what is the dividend one year from now? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Dividend $ c. Which adjustment rate is more conservative? .5 .2 After completing its capital spending for the year, Carlson Manufacturing has $1,900 extra cash. Carlson?s managers must choose between investing the cash in Treasury bonds that yield 4 percent or paying the cash out to investors who would invest in the bonds themselves. a. If the corporate tax rate is 38 percent, what personal tax rate would make the investors equally willing to receive the dividend or to let Carlson invest the money? (Do not round intermediate calculations.) Personal tax rate % b. Is the answer to (a) reasonable? Yes No c. Suppose the only investment choice is a preferred stock that yields 9 percent. The corporate dividend exclusion of 70 percent applies. What personal tax rate will make the stockholders indifferent to the outcome of Carlson?s dividend decision? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Personal tax rate % d. Is this a compelling argument for a low dividend payout ratio? Yes No Roll Corporation (RC) currently has 515,000 shares of stock outstanding that sell for $40 per share. Assuming no market imperfections or tax effects exist, what will the share price be after: a. RRC has a five-for-three stock split? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) New share price $ b. RC has a 15 percent stock dividend? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) New share price $ c. RC has a 44.5 percent stock dividend? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) New share price $ d. RC has a 2-for-7 reverse stock split? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) New share price $ e. Determine the new number of shares outstanding in parts (a) through (d). (Do not round intermediate calculations and round your final answers to nearest whole number. (e.g., 32)) a. New shares outstanding b. New shares outstanding c. New shares outstanding d. New shares outstanding ________________________________________

The shareholders of Flannery Company have voted in favor of a buyout offer from Stultz Corporation. Information about each firm is given here: Price-earnings ratio Shares outstanding Earnings Flannery 16.0 96,000 $ 180,000 Stultz 23 230,000 $ 900,000 Flannery's shareholders will receive one share of Stultz stock for every three shares they hold in Flannery. a-1. What will the EPS of Stultz be after the merger? (Do not round intermediate calculations and round your final answer to 3 decimal places. (e.g., 32.161)) EPS $ a-2. What will the PE ratio be if the NPV of the acquisition is zero? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) PE b. What must Stultz feel is the value of the synergy between these two firms? (Do not round intermediate calculations.) Synergy value $ Bentley Corp. and Rolls Manufacturing are considering a merger. The possible states of the economy and each company's value in that state are shown here: State Boom Recession Probability .80 .20 Bentley $ 328,000 $ 129,000 Rolls $ 298,000 $ 99,000 Bentley currently has a bond issue outstanding with a face value of $144,000. Rolls is an all-equity company. a. What is the value of each company before the merger? (Do not round intermediate calculations.) Value of Bentley Value of Rolls $ $ b. What are the values of each company's debt and equity before the merger? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations.) Equity of Rolls Debt of Rolls Equity of Bentley Debt of Bentley $ $ $ $ c. If the companies continue to operate separately, what are the total value of the companies, the total value of the equity, and the total value of the debt? (Do not round intermediate calculations.) Value of companies Value of equity Value of debt $ $ $ d-1. What would be the value of the merged company? (Do not round intermediate calculations.) Merged company value $ d-2. What would be the value of the merged company's debt and equity? (Do not round intermediate calculations.) Value of the company Value of debt Value of equity $ $ e-1. How much would shareholders gain or lose in the merger? (Do not round intermediate calculations. Enter a gain as a positive number and a loss as a negative number.) Shareholders' gain or loss $ e-2. How much would bondholders gain or lose in the merger? (Do not round intermediate calculations. Enter a gain as a positive number and a loss as a negative number.) Bondholders' gain or loss $ The Sharpe Co. just paid a dividend of $1.90 per share of stock. Its target payout ratio is 40 percent. The company expects to have an earnings per share of $4.80 one year from now. a. If the adjustment rate is .2 as defined in the Lintner model, what is the dividend one year from now? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Dividend $ b. If the adjustment rate is .5 instead, what is the dividend one year from now? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Dividend $ c. Which adjustment rate is more conservative? .5 .2 After completing its capital spending for the year, Carlson Manufacturing has $1,900 extra cash. Carlson's managers must choose between investing the cash in Treasury bonds that yield 4 percent or paying the cash out to investors who would invest in the bonds themselves. a. If the corporate tax rate is 38 percent, what personal tax rate would make the investors equally willing to receive the dividend or to let Carlson invest the money? (Do not round intermediate calculations.) Personal tax rate % b. Is the answer to (a) reasonable? Yes No c. Suppose the only investment choice is a preferred stock that yields 9 percent. The corporate dividend exclusion of 70 percent applies. What personal tax rate will make the stockholders indifferent to the outcome of Carlson's dividend decision? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Personal tax rate % d. Is this a compelling argument for a low dividend payout ratio? Yes No Roll Corporation (RC) currently has 515,000 shares of stock outstanding that sell for $40 per share. Assuming no market imperfections or tax effects exist, what will the share price be after: a. RRC has a five-for-three stock split? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) New share price $ b. RC has a 15 percent stock dividend? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) New share price $ c. RC has a 44.5 percent stock dividend? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) New share price $ d. RC has a 2-for-7 reverse stock split? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) New share price e. $ Determine the new number of shares outstanding in parts (a) through (d). (Do not round intermediate calculations and round your final answers to nearest whole number. (e.g., 32)) a. b. c. d. New shares outstanding New shares outstanding New shares outstanding New shares outstanding