Chapter 26

Problems 1-15

Input boxes in tan

Output boxes in yellow
Given data in blue
Calculations in red
Answers in green

NOTE: Some functions used in these spreadsheets may require that

the "Analysis ToolPak" or "Solver Add-in" be installed in Excel.
To install these, click on "Tools|Add-Ins" and select "Analysis ToolPak"
and "Solver Add-In."
ysis ToolPak"
Chapter 26
Question 1

Input Area:

Cash offer $ 538,000,000

Value of company $ 495,000,000

Output Area:

Minimum estimated value $ 43,000,000

Chapter 26
Question 2

Input Area:

Merger premium $ 5
Firm X Firm Y
Total earnings $ 74,000 $ 19,000
Shares outstanding $ 30,000 $ 20,000
Per-share values
Market $ 53 $ 16
Book $ 17 $ 6

Output Area:

Pooling of interest:
Equity = Assets $ 630,000

Purchase method:
Asset from X (book value) $ 510,000
Asset from Y (market value) $ 320,000
Purchase price of Y $ 420,000
Goodwill $ 100,000
Total assets XY = Total equity XY $ 930,000
Chapter 26
Question 3

Input Area:

Meat Co.
Current assets $ 9,000 Current liabilities $ 5,800
Net fixed assets $ 32,000 Long-term debt 9,300
Equity 25,900
Total $ 41,000 $ 41,000

Loaf, Inc.
Current assets $ 3,600 Current liabilities $ 1,800
Net fixed assets 6,500 Long-term debt 2,100
Equity 6,200
Total $ 10,100 $ 10,100

Output Area:

Meat Co. - Post merger

Current assets $ 12,600 Current liabilities $ 7,600
Net fixed assets 38,500 Long-term debt 11,400
Equity 32,100
Total $ 51,100 $ 51,100
Chapter 26
Question 4

Input Area:

Meat Co.
Current assets $ 9,000 Current liabilities $ 5,800
Net fixed assets $ 32,000 Long-term debt $ 9,300
Equity $ 25,900
Total $ 41,000 $ 41,000

Loaf, Inc.
Current assets $ 3,600 Current liabilities $ 1,800
Net fixed assets $ 6,500 Long-term debt $ 2,100
Equity $ 6,200
Total $ 10,100 $ 10,100

Fair market value $ 12,500

Paid $ 19,000

Output Area:

Market value of Loaf's assets $ 16,100

Market value of Loaf's debt $ 3,900

Goodwill $ 6,800

Meat Co. - Post Merger

Current assets $ 12,600 Current liabilities $ 7,600
Net fixed assets 44,500 Long-term debt 30,400
Goodwill 6,800 Equity 25,900
Total $ 63,900 $ 63,900
Chapter 26
Question 5

Input Area:

Silver Enterprises
Current assets $ 3,400 Current liabilities $ 2,300
Other assets 900 Long-term debt 6,500
Net fixed assets 12,100 Equity 7,600
Total $ 16,400 $ 16,400

All Gold Mining

Current assets $ 1,200 Current liabilities $ 1,100
Other assets 480 Long-term debt -
Net fixed assets 6,300 Equity 6,880
Total $ 7,980 $ 7,980

Output Area:

Silver Enterprises - Post Merger

Current assets $ 4,600 Current liabilities $ 3,400
Other assets 1,380 Long-term debt 6,500
Net fixed assets 18,400 Equity 14,480
Total $ 24,380 $ 24,380
Chapter 26
Question 6

Input Area:

Silver Enterprises
Current assets $ 3,400 Current liabilities $ 2,300
Other assets 900 Long-term debt 6,500
Net fixed assets 12,100 Equity 7,600
Total $ 16,400 $ 16,400

All Gold Mining

Current assets $ 1,200 Current liabilities $ 1,100
Other assets 480 Long-term debt -
Net fixed assets 6,300 Equity 6,880
Total $ 7,980 $ 7,980
Market value of fixed assets $ 7,900
New long-term debt $ 11,000

Output Area:

Silver Enterprises - Post Merger

Current assets $ 4,600 Current liabilities $ 3,400
Other assets 1,380 Long-term debt 17,500
Net fixed assets 20,000 Equity 7,600
Goodwill 2,520
Total $ 28,500 $ 28,500
 Chapter 26
Question 7

Input Area:

After-tax annual cash flow $ 2,400,000

Teller market value $ 58,000,000
Penn market value $ 107,000,000
Discount rate 10%
Stock offer 40%
Cash offer $ 73,000,000

Output Area:

a. V*k $ 82,000,000
Cash cost $ 73,000,000
Equity cost $ 75,600,000

b. NPV cash $ 9,000,000

NPV stock $ 6,400,000

c. Acquire the company for cash.

 Chapter 26
Question 8

Input Area:

Jolie Pitt
Price-earnings ratio 10.40 22.00
Shares outstanding 92,337 194,000
Earnings $ 245,000 $ 730,000

Shareholders receive 1 for 3

Output Area:

a. EPS $ 4.338
The market price will remain unchanged since
it is a zero NPV acquisition.
Current share price $ 82.78
New P/E 19.09

b. V* $ 2,548,000
Cost of acquisition $ 2,548,000

DV $ (0.00)
Although there is no economic value to the
takeover, it is possible that Pitt is
motivated to purchase Jolie for other
than financial reasons.
 Chapter 26
Question 9,10

Input Area:

Firm B Firm T
Shares outstanding 3,400 1,500
Share price $ 43.00 $ 18.00

Synergy benefits $ 6,000

Acquisition price $ 20.50
d. Shareholders receive 1 for 2

Output Area:

a. NPV $ 2,250

b. New share price $ 43.66

c. Merger premium $ 3,750

d. New shares of B 750

VBT $ 179,200.00
Share price $ 43.18

e. NPV $ 614.46

Value of cash offer $ 20.50

Value of share offer $ 9.00
The shareholders are better off with the
cash offer because they
receive a higher value for their shares.

Indifferent exchange ratio 0.4695

 Chapter 26
Question 11

Input Area:

Firm A Firm B
Total earnings $ 1,400 $ 500
Shares outstanding 500 200
Price per share $ 34 $ 8

Acquisition price $ 11

Output Area:

Cost $ 2,200
Shares given up by A 64.71

a. EPS $ 3.36

b. Old P/E 12.14

New price $ 40.86

c. P/E 10.11

d. Price $ 32.94
P/E 9.79
At the current acquisition price, this is a
negative NPV acquisition.
Chapter 26
Question 12

Output Area:

NPV = VB* - cost

= DV + VB - cost
= DV - (cost - VB)
= DV - merger premium
 Chapter 26
Question 13

Input Area:

Incremental aftertax cash flows $ 450,000

Flash-in-the-Pan market value $ 14,000,000
Fly-by-Night market value $ 31,000,000
Discount rate 8%
Stock offer 35%
Cash offer $ 18,500,000

Output Area:

a. Synergy value $ 5,625,000

b. Value to acquirer $ 19,625,000

c. Cost of cash acquisition $ 18,500,000

Cost of stock acquisition $ 17,718,750

d. NPV of cash acquisition $ 1,125,000

NPV of stock acquisition $ 1,906,250

e. Aquire the company for stock.

 Chapter 26
Question 14

Input Area:

Harrod's market value 200,000,000

Harrod's shares outstanding 9,000,000
Selfridge market value 70,000,000
Selfridge shares outstanding 8,000,000
Combined firm value 300,000,000
Merger premium 10,000,000

a. Shares offered 2,500,000

b. Cash offer 90,000,000

Output Area:

a. New shares outstanding 11,500,000

New stock price 26.09

b. Fractional ownership of target shareholders 30.00%

New shares issued 3,857,143

Exchange ratio 0.4821 to 1

 Chapter 26
Question 15

Input Area:

Foxy Pulitzer
Price-earnings ratio 15.50 11.50
Shares outstanding 1,200,000 500,000
Earnings $ 3,600,000 $ 680,000
Dividends $ 810,000 $ 310,000

Analyst growth rate 5%

Management growth rate 7%
c. Cash offer $ 18.00
e. Shares offered 200,000
g. Consultant growth rate 6%

Output Area:

a. Pulitzer EPS $ 1.36

Pulitzer stock price $ 15.64
Pulitzer DPS $ 0.62
Equity required return 9.16%
P with new growth rate $ 30.68
VT* $ 15,339,408.63

b. Gain $ 7,519,408.63

c. NPV $ 6,339,408.63

d. Highest bid price $ 30.68

e. Market value of Foxy $ 55,800,000

PC $ 50.81
NPV $ 5,176,635.97
The acquisition should go forward.
The company should offer cash.
g. P with new growth rate $ 20.78
VP* $ 10,390,828.95
Gain $ 2,570,828.95
NPV cash $ 1,390,828.95
PCombined $ 47.28
NPV stock $ 934,996.25
The acquisition should go forward.
The company should offer cash.