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What would be the total assets for the new company XY

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Q1. Consider Firm X and Y. The firm had total earnings of $300,000 and Shares outstanding of 145,000. Firm X per-share market value is 130.5. Firm X per-share book value is $59.625. Firm Y had total earnings of $1,000,000 and Shares outstanding of 104500. Firm Y per-share market value is $298.5. Firm Y per-share book value is $65.375.

a. Assume that Firm X acquires Firm Y by issuing long-term debt to purchase all the shares outstanding at a merger premium of $3.875. Assuming that neither firm has any debt before the merger, what would be the total assets for the new company XY.

b. Assume that Firm Y acquires Firm X by issuing long-term debt to purchase all the shares outstanding at a merger premium of $5.875. Assuming that neither firm has any debt before the merger, what would be the total assets for the new company YX.

Q2. KLM Corp. is analyzing the possible acquisition of ANN Corp. Both companies believe the acquisition will increase its total after-tax annual cash flows by $2867985 indefinitely. The current market value of ANN Corp is $9,000,000 and that of KLM Corporation is $14,950,000. The appropriate discount rate for the incremental cash flows is 10.5%. KLM Corp is trying to decide whether it should offer 48% of its stock or $14,300,000 in cash to ANN's shareholders.

a. What is the NPV of the stock offer?

b. What is the NPV of the cash offer?

Reference no: EM132977064

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