Does the estimate of synergies

Assignment Help Financial Accounting
Reference no: EM132938405

Company A is preparing a deal to acquire company B. One analyst estimated that the merger would produce 175 million dollars of annual cost savings, from operations, general and administrative expenses and marketing. These annual cost savings are expected to begin three years from now, and grow at 3% a year. In addition the analyst is assuming an after-tax integration cost of 0.25 billion, and taxes of 21%. Assume that the integration cost of 0.25 billion happens right when the merger is completed (year 0). The analyst is using a cost of capital of 9% to value the synergies. Company B's equity is trading at 4.3 B dollars (market value of equity). Company A is planning to pay a 32% premium for company B.

Problem a: Compute the value of the synergy as estimated by the analyst. Please show your calculations.

Problem b: Does the estimate of synergies in a) justify the premium that company A offered to company B?

Reference no: EM132938405

Questions Cloud

Advantages and disadvantages of the decision-making models : 1. What are the advantages and disadvantages of the following decision-making models?
Discuss perspectives on malaysia export and import growth : Recovery in the domestic economy is expected to continue in 2021. Discuss perspectives on Malaysia's export and import growth in 2021.
What is general opinion of labor unions : What is your general opinion of labor unions and why? Do you think labor unions are still necessary?
Differentiate between injection and monetary approach : Acknowledging the significant economic impact of the pandemic COVID-19, Differentiate between the objectives of fiscal injection approach and monetary approach
Does the estimate of synergies : Does the estimate of synergies. Company A is preparing a deal to acquire company B. One analyst estimated that the merger would produce
Find how many pounds of raw materials should be purchased : 45,000 pounds desired for inventory at January 31, and 295,000 pounds are required for January production, how many pounds of raw materials should be purchased
Explain situational leadership : Situational leadership: Using an appropriate management theory, examine the problems this business may have if the managers were not effective in carrying out t
Resource efficiency in the workplace : You're concerned about resource efficiency in the workplace and decide to keep a log of equipment use, maintenance logs and thermostat temperatures.
How do prepare a bank reconciliation statement : Prepare a bank reconciliation statement. The Vivianne Manufacturing Company received its bank statement for the month ending May 31.

Reviews

Write a Review

Financial Accounting Questions & Answers

  Make contingent liability and how to do tax savings

When looking at an income tax disclosure on a 10k; what would it mean when you say "Make contingent liability" and "How to do tax savings"?

  How would the consolidated statements change

Prepare a worksheet to consolidate these two companies as of December 31, 2013 and prepare a 2013 consolidated income statement for Krause and Leahy - how would the consolidated statements change?

  Determine materiality and assess inherent risk

The audit team needs to gain an understanding of Cloud 9's structure and its business environment, determine materiality, and assess inherent risk.

  Restate the entry for september

Restate the entry for September 1, assuming the treasury shares were sold at $12 per share.

  Explain why are difference in the two approaches

Explain why there are difference in the two approaches. Do you believe it is rational to have these differences in the two reporting entities?

  Prepare the journal entry for second semi-annual interest

Prepare the journal entry for the second semi-annual interest payment and amortization of the bond discount or premium using the straight line method.

  Midwest corp completed the following transactions in 2012

midwest corp completed the following transactions in 2012 the first year of operation.1. issued 20000 shares of 10 par

  Indirect method of cash flow from from operating activities

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. If needed, use the minus sign to indicate cash outflows, negative amounts or a decrease in cash.

  Calculate the total dividends paid on preferred shares

Calculate the total dividends paid on preferred shares up to the end of 2017 and the amount of the Retained Earnings at the end of 2017.

  Find the equivalent future value of the total amount

From an early investment, Jane can receive $1,000 at the end of the second year, $2,000 at the beginning of the fourth year, $3,000 at the beginning of the fifth year, and $4,000 at the end of the fifth year. (1) Draw a cash flow diagram to show Jane..

  Calculate the breakeven point for each product

If a company sells multiple products, to calculate the breakeven point for each product, its unit contribution margin must be weighted by the sales mix?

  Compute the target selling price

Mussatto Corporation produces snowboards. The following per unit cost information is available: direct materials $12; direct labor $8; variable manufacturing overhead $6; fixed manufacturing overhead $14;

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd