Finance Questions
1. As an analyst, you need to calculate the maximum number
of acquirer shares that can be offered for each target share without diluting
the forecasted acquirer's EPS. The tax rate is 20%. No debt is issued for this
merger. Acquirer NI 35 Acquirer shrs 5 Target NI 79 Target shrs 7 All numbers
are in millions. Note you will have to compute EPS before answering this
question. Answer to one decimal place, ##.#
2. As an analyst, you need to calculate the combined
earnings of a proposed merger between the Chocolatte and Bute Peanutt firms.
Assume the merger is financed by debt of $20 million at 5%. The tax rate is
20%.
Chocolatte NI 35 Bute Peanutt NI 32 All numbers are in
millions. Answer to one decimal place ##.#
3. Warrants increase the return to lenders and sometimes are
necessary to secure financing. T/F 4. Cashflow LBOs are considered less risky
for lenders. T/F 5. Unsecured LBO's rely on cash flows to repay debt. T/F 6.
Firms with assets that have a high collateral value can more easily obtain LBO
loans T/F 7. A partial sellout is known as a leveraged recapitalization. T/F 8.
Explain, in your own words, why there might be a conflict of interest in a
management buyout.
9. What are two advantages that the Adjusted Present Value
(APV) method has over the WACC based Discounted Cash Flow (DCF) method? 10.
Briefly list and explain (in your own words) four key post-merger integration
issues.
11. Explain, in your own words, how an LBO adds value.
12. Explain, in your own words, the advantages of a deal to
purchase the target's equity (as opposed to its assets).
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