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(Solution Download) Sweet Cola Corp. (SCC) is bidding to take over Salty Dog Pretzels (SDP). SCC has 3,000 shares outsta


 

 

 

 

 

 

 

Sweet Cola Corp. (SCC) is bidding to take over Salty Dog

 

Pretzels (SDP). SCC has 3,000 shares outstanding, selling at $50

 

per share. SDP has 2,000 shares outstanding, selling at $17.50 a

 

share. SCC estimates the economic gain from the merger to be

 

$15,000.

 

 


 

 

 

 

 

 

 

 

 

a.

 

If SDP can be acquired for $20 a share, what is the NPV of the

 

merger to SCC?

 

 


 

 

 

 

 

 

 

 

  NPV

 

$   

 


 

 

 

 

 

 

 

 

b-1.

 

What will SCC sell for when the market learns that it plans to

 

acquire SDP for $20 a share? (Do not round intermediate

 

calculations. Round your answer to 2 decimal places.)

 

 


 

 

 

 

 

 

 

 

  Selling price

 

$   

 


 

 

 

 

 

 

 

 

b-2.What will SDP sell for?

 


 

 

 

 

 

 

 

 

  Selling price

 

$   

 


 

 

 

 

 

 

 

 

b-3.

 

What are the percentage gains to the shareholders of each firm?

 

(Do not round intermediate calculations. Enter your answers

 

as a percent rounded to 2 decimal places.)

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains

 

        

  SCC

 

%  

  SDP

 

%  

 


 

 

 

 

 

 

 

 

 

c.

 


 

Now suppose that the merger takes place through an exchange of

 

stock. On the basis of the premerger prices of the firms, SCC sells

 

for $50, so instead of paying $20 cash, SCC issues .40 of its

 

shares for every SDP share acquired. What will be the price of the

 

merged firm? (Do not round intermediate calculations. Round

 

your answer to 2 decimal places.)

 

 


 

 

 

 

 

 

 

 

  Price

 

$   

 


 

 

 

 

 

 

 

 

 

d.

 

What is the NPV of the merger to SCC when it uses an exchange of

 

stock? (Do not round intermediate calculations. Round your

 

answer to 2 decimal places.)

 

 


 

 

 

 

 

 

 

 

  NPV

 

$   

 


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