User Account

All Pages

What is the incremental value of the acquisition

Assignment Help Finance Basics
Reference no: EM133056138

Dumb Jack Ltd. is considering making an offer to acquire Smart Smith Ltd. Before the announcement, Dumb Jack has a market value of $6 million and its shares are trading at $40 per share. Smart Smith has 50,000 shares outstanding with a share price of $15. Smart Smith can be acquired for $22 per share in cash or by exchange of stocks wherein Dumb Jack offers one of its share for every two of Smart Smith's shares. The value of Smart Smith to Dumb Jack is expected to be $1.6 million.

Required:

(a) What is the incremental value of the acquisition to Dumb Jack?

(b) Should Dumb Jack make a cash offer or a stock offer? Show all necessary calculations.

(c) Suppose the market currently estimates a 60 percent probability that Dumb Jack will go ahead with the acquisition with a stock offer. What will the market value of Dumb Jack be immediately after the announcement of the acquisition?

(d) At what exchange ratio of Dumb Jack shares to Smart Smith shares, would the shareholders in Smart Smith be indifferent between a stock offer and the cash offer? You don't need to consider the probability of acquisition in this part.

Reference no: EM133056138

Questions Cloud

What is the contribution margin ratio : QUESTION - Its Company has provided the following information: Fixed costs per month $20,000. What is the contribution margin ratio
Research on penetration testing techniques : Do a bit of research on penetration testing techniques. Five network penetration testing techniques.
Compute the present value of the plan : You plan to put $1,000 in a saving plan per MONTH (end of month) for 2 years. Compute the present value (PV) of the plan with each of the following options?
Motivated and capable team members : In a perfect world, every project would be characterized by clear project requirements that never changed; motivated and capable team members
What is the incremental value of the acquisition : Dumb Jack Ltd. is considering making an offer to acquire Smart Smith Ltd. Before the announcement, Dumb Jack has a market value of $6 million and its shares are
Exploiting the arbitrage opportunity : Suppose the spot and one-year forward exchange rates on the New Zealand dollar are NZD1.055/AUD and NZD1.110/AUD, respectively.
Penetration testing techniques : Do a bit of research on penetration testing techniques.
What is PCI-DSS : What are the four merchant levels of PCI-DSS compliance? What is PCI-DSS?
Describe four types of VPNs Operating system : Describe four types of VPNs Operating system-based VPN, Module-based VPN, Hardware VPNs, Hybrid VPNs and give an example of when I should use that type.

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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