Dr. Brandon Cline
itoo 30
Financial Management
3 :
2200
:
24
.
.
:
Problems for Exam 1
1.
The balance sheets for the Raider Company and the Target Company appear below:
Raider balance sheet
$2,800 Current assets $3,800 Debt >00 0%
:56
:
.
$8,400 PP&E $7,400 Stockholders’ equity 3 05
$11,200 Total assets $11,200
.
Target balance sheet 6x3 05 18 3
.
=
.
$1,400 Current assets $2,800 Debt
$4,600 PP&E $3,200 Stockholders’ equity 2560 +
22200 = 24 .
760/838 =
24 04
.
$6,000 Total assets $6,000 840(5) +
890 =
1830
Aquiring
The Raider Company plans to takeover the Target Company. The Raider Company has 890 common
I
shares outstanding, their equity price-to-book ratio is 3.00, and their price-to-earnings ratio is 39.2. The
Target Company has 840 common shares outstanding, their equity price-to-book ratio is 0.80, and their
price-to-earnings ratio is 11.4. The Raider Company offers 1 share(s) of Raider stock to Target shareholders
that tender 6 Target shares (the exchange ratio is 0.166667; assume fractional shares can be exchanged).
Suppose tax effects and synergistic gains and losses equal zero; that is, accumulated sales, costs, and
profits remain the same.
After the Raider takes control of all Target shares, what is the percentage change in Target shareholder
wealth?
a. 31% b. 24% c. 26% d. 21% e. 29%
2.
The Company had quite a few changes during the past year. The changes for their different balance sheet
items from last year to this year were (the changes in parentheses are declines; otherwise the changes are
increases): ($8,000) for Receivables; ($4,100) for Payables; $6,000 for Cash; $7,700 for Short-term Notes
Payable; ($4,100) for Plant, Property, & Equipment; and ($6,400) for Long-Term Debt. Which statement is
most accurate?
a. The change in net working capital is ($5,600)and represents a source of financing
b. The change in net working capital is ($5,600)and represents a use of financing
c. The change in net working capital is ($4,870)and represents a source of financing
d. The change in net working capital is ($6,440)and represents a source of financing
e. The change in net working capital is ($4,870)and represents a use of financing
3.
Shareholders had a good year, earning a 29% annual rate of return. The P/E ratio today is 10.0 and the
company just announced earnings per share of $2.50 . The company has a 90% payout ratio. How much
did the stock price change over the past year?
a. $4.26 b. $3.52 c. $5.16 d. $4.69 e. $3.88
, Calculate Raider Return PROB 1
ROP
Nerd
old
As a 5H should I vote yes or No to merger If ROR is
highenough vote yes
New TargetSHwealth after merger
old Target 5HWealth b4 merger
Given 3 companies
shares outstanding 840 fi imerate
pricetoBookRatio 8
Is 3
Pg
39.2
PricetoEarningsratio 11.4
Tender offer 1 Ygpander
offers for every
shares of target sit
wealththeygive back
Yef.twqnfhfdres
I share of new share worth
conglomerate
of useP tofindp
ep 1 Findprice each company
Raider
anuse E or PILEftp.uaw
EITEht.mn difaincomeaeapnat Italemke Tant use this for this scenario p
use for this
Is iiitianya.siiiigfftngiiggt al Sheet
Bookvalue OHequity OHequity
0 PE22.200 valueoftotalRaider Company MarketCap M.P
73 3.0 00 3
Fatality
94 MH
pr 228
, Step 2 Find price
1 2560
73 8 00
9
Pt 3.050
step 3 Find price
b4 Merger
6 3.05 18.30 OLD Target
4 Find price of conglomerate
tep
Mkt cap Raider Mkt capTarget
Ynkfomhap.ee Need
totalvalue P of new p
conglomerate
22,200 2560
to find p from P
outstanding 5.0
na ofshares Where
of 5.0 Raidershares Targetshares offersble 1 6 it takes 6 to
feoffaffff
Multiply
890 840 t to multiplybyto
by offer I
Iep5 Find conglomerate priceper share
241 124.004pershare of conglomerate
New I 24.04 24.04 5H say Yes
OLD 6 3.05 18.30
nor
to merger we are
i
itoo 30
Financial Management
3 :
2200
:
24
.
.
:
Problems for Exam 1
1.
The balance sheets for the Raider Company and the Target Company appear below:
Raider balance sheet
$2,800 Current assets $3,800 Debt >00 0%
:56
:
.
$8,400 PP&E $7,400 Stockholders’ equity 3 05
$11,200 Total assets $11,200
.
Target balance sheet 6x3 05 18 3
.
=
.
$1,400 Current assets $2,800 Debt
$4,600 PP&E $3,200 Stockholders’ equity 2560 +
22200 = 24 .
760/838 =
24 04
.
$6,000 Total assets $6,000 840(5) +
890 =
1830
Aquiring
The Raider Company plans to takeover the Target Company. The Raider Company has 890 common
I
shares outstanding, their equity price-to-book ratio is 3.00, and their price-to-earnings ratio is 39.2. The
Target Company has 840 common shares outstanding, their equity price-to-book ratio is 0.80, and their
price-to-earnings ratio is 11.4. The Raider Company offers 1 share(s) of Raider stock to Target shareholders
that tender 6 Target shares (the exchange ratio is 0.166667; assume fractional shares can be exchanged).
Suppose tax effects and synergistic gains and losses equal zero; that is, accumulated sales, costs, and
profits remain the same.
After the Raider takes control of all Target shares, what is the percentage change in Target shareholder
wealth?
a. 31% b. 24% c. 26% d. 21% e. 29%
2.
The Company had quite a few changes during the past year. The changes for their different balance sheet
items from last year to this year were (the changes in parentheses are declines; otherwise the changes are
increases): ($8,000) for Receivables; ($4,100) for Payables; $6,000 for Cash; $7,700 for Short-term Notes
Payable; ($4,100) for Plant, Property, & Equipment; and ($6,400) for Long-Term Debt. Which statement is
most accurate?
a. The change in net working capital is ($5,600)and represents a source of financing
b. The change in net working capital is ($5,600)and represents a use of financing
c. The change in net working capital is ($4,870)and represents a source of financing
d. The change in net working capital is ($6,440)and represents a source of financing
e. The change in net working capital is ($4,870)and represents a use of financing
3.
Shareholders had a good year, earning a 29% annual rate of return. The P/E ratio today is 10.0 and the
company just announced earnings per share of $2.50 . The company has a 90% payout ratio. How much
did the stock price change over the past year?
a. $4.26 b. $3.52 c. $5.16 d. $4.69 e. $3.88
, Calculate Raider Return PROB 1
ROP
Nerd
old
As a 5H should I vote yes or No to merger If ROR is
highenough vote yes
New TargetSHwealth after merger
old Target 5HWealth b4 merger
Given 3 companies
shares outstanding 840 fi imerate
pricetoBookRatio 8
Is 3
Pg
39.2
PricetoEarningsratio 11.4
Tender offer 1 Ygpander
offers for every
shares of target sit
wealththeygive back
Yef.twqnfhfdres
I share of new share worth
conglomerate
of useP tofindp
ep 1 Findprice each company
Raider
anuse E or PILEftp.uaw
EITEht.mn difaincomeaeapnat Italemke Tant use this for this scenario p
use for this
Is iiitianya.siiiigfftngiiggt al Sheet
Bookvalue OHequity OHequity
0 PE22.200 valueoftotalRaider Company MarketCap M.P
73 3.0 00 3
Fatality
94 MH
pr 228
, Step 2 Find price
1 2560
73 8 00
9
Pt 3.050
step 3 Find price
b4 Merger
6 3.05 18.30 OLD Target
4 Find price of conglomerate
tep
Mkt cap Raider Mkt capTarget
Ynkfomhap.ee Need
totalvalue P of new p
conglomerate
22,200 2560
to find p from P
outstanding 5.0
na ofshares Where
of 5.0 Raidershares Targetshares offersble 1 6 it takes 6 to
feoffaffff
Multiply
890 840 t to multiplybyto
by offer I
Iep5 Find conglomerate priceper share
241 124.004pershare of conglomerate
New I 24.04 24.04 5H say Yes
OLD 6 3.05 18.30
nor
to merger we are
i
