Answer Happy

Use the data for the three separate firms in the table below to answer the following questions. Answer each question independently of all other questions. You must show your step by step derivation to receive full credits. Data for What Not, Inc. (in millions) What-Not, Inc. Earnings per share Price per share Price-earnings ratio NWC FA $4 $64 16 Number of shares 100,000 Total earnings $200,000 Total market value $12,800,000 $2,800,000 Book Value (in millions of dollars, valued at fair market prices): D E 200,000 $800,000 $1.1 2.8 If-Not, Inc. $2 $28 14 2.0 1.9 $0.4 1.0 0.7 0.7 Why-Not, Inc. $2 $12 6 100,000 $200,000 $1,200,000 $0.3 0.8 0.3 0.8
a) What are the cost and net present value of the combination of What-Not, Inc., and If-Not, Inc., if, as a result of the merger, the economies expected are $400,000 and What-Not, Inc. plans to pay $3 million in cash for If-Not, Inc.? b) If What-Not acquires If-Not for $3 million in cash, how will the shareholders of each make out on the deal?
c) If What-Not Inc., merges with Why-Not, Inc., there are no economic gains from the merger, and $1.2 million in stock is paid for Why-Not. Demonstrate the bootstrapping effect of the merger and fill in the blanks in the following table. 1. Earnings per share 2. Price per share 3. Price-earnings ratio 4. Number of shares 5. Total earnings 6. Total market value 7. Current earnings per dollar invested in stock What-Not, Inc. (Postmerger) d) Calculate the apparent and true costs of the merger between What-Not, Inc. and If-Not, Inc., assuming expected economies of $400,000 and the shareholders of If-Not receive one share of What- Not for every two shares they hold. e) Show the results of accounting for the merger between What-Not, Inc. and If-Not, Inc., using both pooling of assets and a purchase of assets methods, where If-Not is acquired for $3 million.