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Using fair value accounting for goodwill under FAS 141R
Case
Talmadge Company is acquiring the target Tyler, Inc in a merger. Tyler's market valuation is $6.0 bln , and its equity value on the balance sheet before any adjustments is 3.0 bln. During the merger process, Tyler's inventories will be written down by $200 mln, and its receivables will be written down by $300mln. On the other hand, under fair value accounting, its plant and equipment will increase in value by $700 mln, and its patents and trademarke will increase in value by $300 mln.
Question: If the prevailing market value of Tyler was $5.0 billion on the Nasdaq during the three months before merger announcement, what is the premium over market value that Talmadge paid for Tyler in dollars and percent?
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