FINC 4000 - University of North Georgia, Gainesville -CFI Mergers and Acquisitions. Questions and Solutions.

CFI Mergers and Acquisitions What is the correct formula for Goodwill? Your Answer Price paid – fair market value of net identifiable assets of target Correct Answer Price paid – fair market v alue of net identifiable assets of target Explanation Under purchase price allocation, Goodwill = Price paid – Net identifiable assets. Takeover premium = Price paid – Market value of target ABC Co. is considering an acquisition of XYZ Co. for a cash offer that values XYZ at 20% higher than its current market capitalization. Given the above data, calculate the takeover premium in dollar terms (Round to the closest dollar). Your Answer $300,000 Correct Answer $300,000 Explanation Cash offer per share = Target pre-merger stock price X (1 + premium) Total Purchase Price = Cash offer per share X Target number of shares outstanding Takeover Premium = Total purchase price – (Target stock price X target shares outstanding) Cash offer per share = 10 X (1 + 0.2) = 12 Total purchase price = 12 X (150,000) = 1,800,000 Takeover premium = 1,800,000 – (10 X 150,000) = 300,000 Given the data in the above table, calculate equity value per share of this hypothetical company. (Round to 2 decimal points) Your Answer $2.20 Correct Answer $2.20 Explanation Equity value per share = (Enterprise value + Cash – Debt)/Shares Outstanding Equity value per share = (300,000+120,000-90,000)/150,000 = $2.20