- Goodwill
Baker Company is buying Charlie Co. for $89 million in cash. Charlie Co.
has $6.5 million in working capital and no long-term debt. The fixed assets of
Charlie Co. were just appraised at $77 million. Baker Company will use the
purchase accounting method to record this acquisition.
What is the amount of the goodwill that will be shown on Baker Company’s
books after the acquisition?
- Cash
acquisition
Firm A is acquiring Firm B for $20,000 in cash. Neither firm has any
debt. Firm A has 2,000 shares of stock outstanding at a price of $30 a share.
Firm B has 800 shares of stock outstanding at a price of $20 a share. The
incremental value of the acquisition is estimated at $7,500.
What is the value of Firm B to Firm A?
- Stock
acquisition
Firm Y has agreed to be acquired by Firm X for $18,000 worth of Firm X
stock. Firm X has 3,000 shares of stock outstanding at a price of $25 a share.
Firm Y has 1,000 shares of stock outstanding at a price of $15 per share. The
incremental value of the acquisition is $5,000.
What is the merger premium per share?
- Stock
acquisition
Firm Y has agreed to be acquired by Firm X for $18,000 worth of Firm X
stock. Firm X has 3,000 shares of stock outstanding at a price of $25 a share.
Firm Y has 1,000 shares of stock outstanding at a price of $15 per share. The
incremental value of the acquisition is $5,000.
What is the value of Firm Y to Firm X?
What is the total number of shares in the new firm?
- Earnings
and valuation
Company A is planning on merging with Company B. Company A will pay B’s
stockholders the current value of their stock in shares of A. The after-merger
earnings will be $52,800. Currently, the values are:
Company
A Company B
EPS $2.00 $1.60
Price $25.00 $16.00
P/E
12.5
10.0
Shares 20,000 8,000
Earnings $40,000 $12,800
Total value $500,000 $128,000
Shares in the new firm: 25,120
What will the earnings per share be after the merger?
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