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
If SDP can be acquired for $20 a share, what is the NPV of the
merger to SCC?
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.)
|b-2.||What will SDP sell for?|
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.)
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.)
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.)
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