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    Price of shares, NPV from merger, lease or buy

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    1-A firm has 100 shares of stock and 40 warrants outstanding. The warrants are about to expire, and all of them will be exercised. The market value of the firm's assets is $2,000, and the firm has no debt. Each warrant gives the owner the right to buy 2 shares at $15 per share. What is the price per share of the stock?
    a.$11.11
    b.$15.00
    c.$17.78
    d.$20.00
    e.None of the above.

    2-Firm V was worth $450 and Firm A had a market value of $375. Firm V acquired Firm A for $425 because they thought the combination of the new Firm VA was worth $925. What is the NPV from the merger of Firm V and Firm A?
    a.$0
    b.$50
    c.$425
    d.$450
    e.None of the above.

    3-The Plastic Iron Company has decided to acquire a new electronic milling machine. Plastic Iron can purchase the machine for $87,000 which has an expected life of 8 years and will be depreciated using 7 class MACRS rates of .1428, .2449, .1749, .125, .0892, .0892, .0892 and any remainder in year 8. Miller Leasing has offered to lease the machine to Plastic Iron for $14,000 a year for 8 years. Plastic Iron has an 18.64% cost of equity, 12% cost of debt, a 1:1 D/E ratio and faces a 34% marginal tax rate. Should they lease or buy?

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    1-A firm has 100 shares of stock and 40 warrants outstanding. The warrants are about to expire, and all of them will be exercised. The market value of the firm's assets is $2,000, and the firm has no debt. Each warrant gives the owner the right to buy 2 shares at $15 per share. What is the price per share of the stock?
    a. $11.11
    b. $15.00
    c. $17.78
    d. $20.00
    e. None of the above.

    Answer: c. $17.78

    Value of assets= $2,000
    Cash brought in by the exercise of warrants= $1,200 =40*2*15
    (2 shares per warrant @ $ 15 per share) $3,200

    Total Number of shares= Existing shares+ New shares= 180 =100+2*40

    Therfore, share price= $17.78 =3200/180

    2-Firm V was worth $450 and Firm A had a market value of $375. Firm V acquired Firm A for $425 because they thought the combination of the new Firm VA was worth $925. What is the NPV from the merger of Firm V and Firm A?
    a. $0
    b. $50
    c. $425
    d. $450
    e. None of the above.

    Answer: b. $50

    Firm V= $450
    Firm ...

    Solution Summary

    Answers questions on Price of shares, NPV from merger, lease or buy decision.

    $2.19

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