Acquiring Corp agrees to buy 100% of the outstanding shares of Target Corp in a share for share exchange. How would Acquiring Corp determine how many new share of its stock it would have to issue?
A. Multiply the purchase price premium paid for Target’s stock by the number of shares of target stock outstanding.
B. Multiply the share exchange ratio by the number of Acquirer shares outstanding.
C. Add the number of Acquirer and Target shares outstanding
D. Multiply the share exchange ratio by the number of Target shares outstanding.
E. Divide the share exchange ratio by the purchase price premium
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The share exchange ratio is defined as
A. Offer price for the target divided by the acquirer's share price
B. Offer price for the target divided by the target's share price
C. Acquirer's share price divided by the target's share price
D. Target's share price divided by the offer price
E. Acquirer's share price divided by the offer price
The initial offer price for the target firm is defined as
A. The minimum price
B. The present value of the minimum price plus some fraction of the present value of net synergy
C. The present value of net synergy plus the current market value of the target firm
D. The maximum price less the minimum price
E. The maximum price less the present value of net synergy
Which of the following is generally not considered a source of value to the acquiring firm?
A. Duplicate facilities
B. Patents
C. Land on the balance sheet at below market value
D. Warranty claims
E. Copyrights
Target is a wholly owned subsidiary of MegaCorp Inc. MegaCorp supplies a number of services to target. Target sells some of its products to other MegaCorp subsidiaries. Target also buys products from other MegaCorp subsidiaries that are used as inputs in producing Target’s products. Which of the following adjustments should the acquirer make to Target’s financial statements before valuing the firm?
A. Deduct the actual cost of services required by Target that are being supplied by the parent without charge from target’s cost of sales.
B. Deduct the difference between the cost of products purchased from other MegaCorp subsidiaries at below market prices and the actual market prices for such products from Target's cost of sales.
C. Deduct the difference between the cost of products purchased from other MegaCorp subsidiaries at above market prices and the actual cost of such products if purchased from other sources from Target's cost of sales
D. A and B only.
E. None of the above.
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