1. ABC corporation has announced plans to acquire XYZ corporation.

ABC is trading for

$45 per share and XYZ is trading for $25 per share, with a premerger value for XYZ of
$3 billion dollars. If the projected synergies from the merger are $750 million, what
is the maximum exchange ratio that ABC could offer in a stock swap and still generate
a positive NPV?

2. XYZ has earnings per share of $2. It has 10 million shares outstanding and is trading
at $20 per share. XYZ is thinking of buying ABC, which has earnings per share of
$1.25, 4 million shares outstanding, and a price per share of $15. XYZ will pay for ABC
by issuing new shares. There are no expected synergies from the transaction.

If XYZ offers an exchange ratio such that, at current pre-announcement share prices
for both firms, the offer represents a 20% premium to buy ABC, then the price per
share of the combined corporation after the merger will be closest to:

3. ABC and XYZ have entered into a stock swap merger agreement whereby ABC will pay
a 30% premium over XYZ's pre-merger price. If ABC's pre-merger price per share was
$15 and XYZ's was $30, then the exchange ratio that ABC will offer is closest to:

4. Firm A has a value of $100 million, and B has a value of $70 million. Merging the
two would allow a cost savings with a present value of $20 million. Firm A purchases
B for $75 million. What is the gain from this merger?

5. Companies A and B are valued as follows:

A B

No. of shares 2000 1000

EPS $10 $10

Share Price $100 $50

Company A now acquires B by offering one (new) share of A for every two shares of B (that
is, after the merger, there are 2500 shares of A outstanding). If investors are aware that
there are no economic gains from the merger, what is the price-earnings ratio of A's stock
after the merger?

6. The following data on a merger is given:

Firm A Firm B Firm AB
Price per share $100 $10
Total earnings $500 $300
Shares outstanding 100 40
Total value $10,000 $4,000 $11,000

Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.
 A. Calculate the gain from the merger.

B. Calculate the NPV of the merger.

C. What will be the post-merger price per share for Firm A's stock if Firm A pays in cash?

7. From the following calculate the free cash

flow:
EBITDA $1000
Depreciation Expense 400
Interest expense 150
Tax rate 30%
Purchases of fixed asset 500
Change in WC 50
Net borrowing 80
Common dividends 200