Offered $197,000,000 for all of the common stock in Watson Corporation.

Watson is worth $178,000,000

Minimum economic value $19,000,000
 Firm X Firm Y Merger premium $5 per share
Total earnings $95,000 $12,000 Purchase price of Y $180,000
Shares outstanding 20,000 9,000 Goodwill $45,000
Per-share values: Total assets XY $300,000
Market $ 63 $ 15
Book $6 $2
$ 120000 $ 135000
 Meat Co. The fair market value of Loaf’s $11,500
Current assets $21,600 Current liabilities $7,320 Purchase accounting method $18,400
Net fixed assets $51,600 Long-term debt $16,420 Post-merger long-term debt $37,940
Equity $49,460 Goodwill $7,120
Total $73,200 Total $73,200
Loaf, Inc.
Current assets $4,700 Current liabilities $1,800
Net fixed assets $8,300 Long-term debt $3,120
Equity $8,080
Total $13,000 Total $13,000

Jurion Co., post-merger

Current assets $26,300 Current liabilities $9,120
Net fixed assets $63,100 Long-term debt $37,940
Goodwill $7,120 Equity $49,460
Total $96,520 Total $96,520
 Silver Enterprises
Current assets $7,400 Current liabilities $4,030
Other assets $2,080 Long-term debt $10,600
Net fixed assets $23,910 Equity $18,760
Total $33,390 Total $33,390
All Gold Mining
Current assets $2,080 Current liabilities $2,070
Other assets $800 Long-term debt $0
Net fixed assets $9,620 Equity $10,510
Total $12,580 Total $12,580

Silver Enterprises, post-merger

Current assets $9,480 Current liabilities $6,100
Other assets $2,880 Long-term debt $31,400
Net fixed assets $36,010 Equity $18,760
Goodwill $7,890 Total $56,260
Total $56,260
The market value of All Gold Mining’s fixed assets is $12,100
Purchase accounting method $20,800
Post-merger long-term debt $31,400
Total aftertax annual cash flow $1,450,000 indefinitely Teller
Discount Rate for the incremental CFO 10% CP_MV $31,500,000
Offer_1 40% of its stock
Offer_2 $44,500,000 in cash
The cash cost is the amount of cash offered $44,500,000
The stock offer $46,000,000
Equity cost $39,600,000

NPV cash $1,500,000

NPV stock $6,400,000
 Penn
$53,000,000
 Bread Butter
Price-earnings ratio 7.2 14.4
Shares outstanding 73,000 146,000
Earnings $210,000 $630,000

EPS $4.932
P $62.14
P/E 12.60

V $1,512,000
Cost $1,512,000
NPV $0
 Firm B Firm T
Shares outstanding 6,400 1,500
Price per share $53 $19

Synergistic benefits $17,000

1.Cash $23 per share
NPV $11,000
P $54.72
Merger premium $6,000 $6,000

New shares created 750 new shares

V $384,700
P $53.80
NPV $5,146.85

Equity offer value $26.90

Exchange ratio 42.03%
 Firm A Firm B
Total earnings $5,850 $1,900
Shares outstanding 1,600 400
Price per share $ 56 $ 59

Exchange of stock $61 per share

Cost $ 24400
Shares offered 435.71 shares
EPS $3.81
Original PE 15.32
New price $58.31
New PE 14.71
P $55.61
P/E 14.61
Aftertax cash flow $345,000 would increase indefinitely
MV $8,100,000 of Flash-in-the-Pan
MV $19,000,000 Fly-By-Night Couriers
Discount rate 8%
1.It would offer 35% of its stock
2.It would offer $11,500,000 Cash
Synergy value $4,312,500 PVP
Value $12,412,500
Stock acquisition value $10,994,375
NPV of cash offer $912,500
NPV of stock offer $1,418,125
 Harrods PLC Selfridge Department Store
MV £85,000,000 £30,000,000
Shares outstanding 4500000 1800000
Synergy value £130,000,000 combined firm
Synergy premium £3,100,000

Offers 900,000 shares of its stock in exchange

Number of shares after acquisition 5,400,000
New stock price £24.07
Offers £33,100,000 Cash
£33,100,000
alpha 25.46%
25.46%
New shares issued 1,537,027
Exchange ratio 85.39%
 State Probability Bentley Rolls Merged value
Boom 0.65 $348,000 $312,000 $660,000
Recession 0.35 $132,000 $95,000 $227,000
Par value $150,000
Value $272,400 $236,050
Equity $128,700
Debt $143,700
Combined value $508,450
Combined equity value $364,750
Combined debt value $143,700
Merged company value $508,450
Merged equity value $358,450
 BQ iReport Constant rate 5% per year
Price-earnings ratio 14.5 9.2 Growth rate 7% per year
Shares outstanding 1,400,000 195,000 Offer $38 Cash per share
Earnings $4,300,000 $705,000 Offer 205000 of its shares
Dividends $1,075,000 $375,000 New growth rate 6% per year
EPS $3.07 $3.62
Value $44.54 $33.26
DPS $0.77 $1.92
Required return 11.07%
Price $50.55
New value $9,856,862.86
Gain $3,370,862.86
NPV cash $2,446,862.86
Maximum bid price $50.55
Price merged $44.99
NPV stocks $634,179.44
Price new $40.20
New value $7,839,049.53
Gain new $1,353,049.53
NPV cash new $429,049.53
Price merged new $43.73
NPV stocks new -$1,125,906.95
Cash per share
of its shares
 2019 2020 2021 2022 2023
Sales $409,600,000 $460,800,000 $512,000,000 $576,000,000 $640,000,000
Production costs $287,400,000 $322,500,000 $358,400,000 $404,500,000 $451,200,000
Depreciation $38,400,000 $40,900,000 $42,300,000 $42,500,000 $43,900,000
Other expenses $40,900,000 $46,100,000 $51,200,000 $57,900,000 $63,100,000
EBIT $42,900,000 $51,300,000 $60,100,000 $71,100,000 $81,800,000
Interest $9,730,000 $11,260,000 $12,300,000 $12,800,000 $13,800,000
Taxable income $33,170,000 $40,040,000 $47,800,000 $58,300,000 $68,000,000
Taxes (25%) $8,292,500 $10,010,000 $11,950,000 $14,575,000 $17,000,000
Net income $24,877,500 $30,030,000 $35,850,000 $43,725,000 $51,000,000

2019 2020 2021 2022 2023

Investments:
Net working capital $10,200,000 $12,800,000 $12,800,000 $15,400,000 $15,400,000
Fixed assets $7,700,000 $13,800,000 $9,300,000 $31,400,000 $3,900,000
Total $17,900,000 $26,600,000 $22,100,000 $46,800,000 $19,300,000
Sources of financing:
New debt $17,900,000 $9,200,000 $8,200,000 $15,000,000 $6,100,000
Profit retention $0 $17,400,000 $13,900,000 $31,800,000 $13,200,000
Total $17,900,000 $26,600,000 $22,100,000 $46,800,000 $19,300,000

Acquisition of Hybrid ($212,200,000)

Dividends from Hybrid $76,000,000
Total ($136,200,000)

Year 1 Year 2 Year 3 Year 4 Year 5

Dividends from Hybrid $24,877,500 $12,630,000 $21,950,000 $11,925,000 $37,800,000
Tax-loss carryforwards $12,800,000 $12,800,000
Terminal value of equity $460,800,000
Terminal value of debt ($153,600,000)
Total $24,877,500 $25,430,000 $34,750,000 $11,925,000 $345,000,000

Discount rate 1 2 3 4
Dividends from Hybrid 17.13% $21,238,617 $9,205,393 $13,658,186 $6,334,851
Tax-loss carryforwards 8% $10,973,937 $10,161,053
Terminal value of equity 12.73%
Terminal value of debt 8%
Total $21,238,617 $20,179,330 $23,819,239 $6,334,851
 Offer $282,000,000 Cash
Debt $57,000,000 in Hybrid Golf
Dividend payment $76,000,000
D/E 0.50 UP TO 1.0
Tax loss $12,800,000 in both 2019 and 2020 from Hybrid Golf’s previous
Total value $460,800,000 in five years Hybrid Golf
Total debt $153,600,000 in five years Hybrid Golf
Current Price $94 per share in Birdie Golf
Stock outstanding 11600000 in Birdie Golf
Stock outstanding 5200000 in Hybrid Golf
Both can borrow 8%
R(f) 6%
R(m) 13%
Cost of capital 11% in Birdie Golf
Beta 1.3 in Hybrid Golf
Merger price (Cash) $63.25 per share
W_D 33.33%
W_E 66.67%
The beta for Hybrid’s debt is: 0.29
The overall beta for Hybrid is: 0.96
E(r) 12.73% CAPM
The new beta for equity must be: 1.59
E(r) 17.13% CAPM
NPV of the acquisition is: $101,053,418.08
Highest offer $313,253,418.08
Highest share price $60.24
New P of Birdie after the merger will be: $102.71
Exchange ratio 61.58%
Exchange ratio 67.29% NPV = 0

5
$17,143,097

$253,075,864
($104,537,579)
$165,681,382
020 from Hybrid Golf’s previous operations.