ABC XYZ No of share outstanding 2,000,000 5,000,000 EPS $2.50 $4.00 Price per share $15.00 $60 a) Assume XYZ is taking over ABC by issuing one of its shares for four shares of ABC. If there is no synergy, what would be the post-merger share price of XYZ? What would be the NPV of the merger? b) Assume there is synergy value of $4,200,000 created from the merger. What would be the post-merger price per share of XYZ? What would be the NPV of the merger?
4. The following table shows pre-merger data for ABC Company and XYZ, Inc.
|
|
ABC |
XYZ |
|
No of share outstanding |
2,000,000 |
5,000,000 |
|
EPS |
$2.50 |
$4.00 |
|
Price per share |
$15.00 |
$60 |
a) Assume XYZ is taking over ABC by issuing one of its shares for four shares of ABC. If there is no synergy, what would be the post-merger share price of XYZ? What would be the
b) Assume there is synergy value of $4,200,000 created from the merger. What would be the post-merger price per share of XYZ? What would be the NPV of the merger?
5. Lazos Company is in distress mainly due to its failure to adopt the current technology. Creditors took Lazos to bankruptcy court and Lazos is fighting for a reorganization. The following is its condensed balance sheet.
|
Book Value |
Market Value |
|
|
Current assets |
$ 120,000.00 |
$ 100,000.00 |
|
Machinery |
200,000.00 |
150,000.00 |
|
Other fixed assets |
500,000.00 |
200,000.00 |
|
Total |
$ 820,000.00 |
$ 450,000.00 |
|
Bank loan |
$ 160,000.00 |
|
|
Secured debenture by the machinery |
180,000.00 |
|
|
Unsecured debenture |
300,000.00 |
|
|
Subordinated debenture* |
400,000.00 |
|
|
Equity |
(220,000.00) |
|
|
Total L&E |
$ 820,000.00 |
*Subordinated only to the bank loan
In its reorganization plan, Lazos
- Would the court grant Lazos a reorganization or liquidate it? Show work.
- Irrespective of your answer to (a), assume Lazos will be liquidated and its assets will be sold for the indicated market values. Expenses of liquidation amount to $50,000. Show a schedule of distribution of the proceeds to the claimants according to the absolute priority rule.
6. Bonus 5 points. For the following credit policy changes, indicate whether each change considered independently would cause increase, decrease or no effect on accounts receivable balance of a company.
a) changing terms from "net 40" to "2/10, net 40".
b) changing credit approval threshold credit score from 600 to 700
c) changing terms from "2/10, net 30" to "1/15, net 30"
d) starting the use of debt collection agency for accounts past due 10 days.
e) removing the policy of charging 4% on accounts past due date 15 days and more.
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