Reference no: EM132211899

MERGER QUESTIONS -

Instructions: Please answer each of the five questions -

Question 1 - Management of the Allan Company is considering the purchase of Brock Company. Both companies are in the same industry. Last year, Brock Company had an EBIT of $1600, Depreciation of 600, Capital Expenditures of 700 and Operating NWC of 1000. The company has a tax rate of .25 and is expected to grow at a constant rate of 6%. If Brock has a WACC of 10%, find the company's value.

Question 2 - Assume again that last year Brock had an EBIT of $1500, Depreciation of 600, capital expenditures of 700, operating NWC of 1000 and a tax rate of .25. However, Allan's management believes that Brock will grow at 18% for the next 3 years, and at a constant rate of 5% thereafter. Recompute the value of Brock, assuming that its WACC will remain 10%.

Question 3 - Allan Company has an EBIT of $2500, Depreciation of 800, capital expenditures of 800 and operating NWC of 1500. The company has a tax rate of .25 and a WACC of 10%. If Allan grows at 6% annually for the foreseeable future, what is its value?

Question 4 - Assume that if Allan purchases Brock that the primary benefit will be an increase in operating income. If the firms combine, based on last year's income, operating income will be $4300. If all other costs remain constant and the combined firm will grow at 5.5% annually, with a WACC of 10%, what is the merged firm's value? Would you recommend that the firms merge?

Question 5 - Find a merger that took place between 2016-the present. What was the motivation for the merger? What type of merger was it? (Horizontal, vertical, conglomerate).How did the market react to the merger announcement? Why? What do you think would be the main benefits of merging to the target? The acquirer?