Purchase Solution

Gain from Merger

Not what you're looking for?

Ask Custom Question

4. Smith Devices is contemplating the purchase of National Widget Company. The values of the two companies as separate entities are $20 million and $10 million, respectively. Smith estimates that by combining the two companies it will reduce marketing and administrative costs by $500,000 per year in perpetuity. Smith is willing to pay $14 million cash for National. The opportunity cost of capital is 8 percent.

a. What is the gain from the merger? ____________

b. What is the cost of the cash offer? ____________

c. What is the NPV of the acquisition under the cash offer? _______________

Purchase this Solution
Solution Summary

The solution explains how to calculate the gain, cost and NPV of a merger

Solution Preview

a. What is the gain from merger?

The gain from merger is the PV of the benefits. The benfits are $500,000 per year for perpetuity. The present ...

Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

View More Free Quizzes
Related BrainMass Solutions

  • Calculating the Gain from Merger

    What is the gain from merger? b. What is the cost of the cash offer? c. What is the NPV of the acquisition under the cash offer? a. What is the gain from merger? The gain from merger is the PV of the benefits.

  • Velcro Saddles: Merger and Gains Cost

    What is the gain from merger? b. What is the cost of the cash offer? c. What is the NPV of the acquisition under the cash offer? a. The gain from merger is the PV of the benefits. The benfits are $500,000 per year for perpetuity.

  • Velcro Saddles

    What is the gain from merger? The gain from merger is the PV of the benefits. The benefits are $500,000 per year for perpetuity. The present value of perpetuity is Benefit/Discount rate.

  • Costs, gain, and NPV of the merger

    The gain is the present value of additional cash flows from the merger = $250,000 c. NPV = Gain - Cost = 250,000-100,000 = $150,000 The solution explains how to calculate costs, gain, and NPV of the merger

  • Merger Gains - acquisitions

    = Prevailing selling price of takeover target + Merger gain estimated per share of take over target = 20+ 5 (See working note) =$25 per share= Answer The solution examines merger gains from acquisitions during the takeover of Target Inc.

  • Finance - Smith Devices' case

    _______________ a) Cost of capital =8% Gain from the merger = $0.5 million / 8% = 6.25 million b) Cost of cash offer = Cash paid - Value of National widget = $14.0 - $10 million = $4 million c) NPV of acquisition = Gain from merger - Cost of

  • Anheuser Busch InBev merger

    In addition, the joint company will gain from the reputation of the brand Budweiser. The merger of Anheuser Busch and InBev is a good move from several perspectives.

  • Venture Company's formation

    The net gain from the merger is simply the surplus gain (yellow) minus the surplus loss (black). The surplus gain is a rectangle of base 3 and height 2, so the gain is 3*2=6. The loss is a triangle of base 1 and height 1.

  • How do accounting, tax and legal factors affect an M&A strategy?

    Relevance of these effects in pursuing mergers and acquisitions are as follow - Revenue Enhancement: Revenue enhancement is a gain or benefit from the merger & acquisition in terms of increasing the revenues of a firm through market gain, increase

View More Related Solutions