Explain, in your own words, the advantages of a deal to purchase the target’s equity (as opposed to its assets

1. As an analyst, you need to calculate the maximum number of acquirer shares that can be offered for each target share without diluting the forecasted acquirer’s EPS. The tax rate is 20%. No debt is issued for this merger. Acquirer NI 35 Acquirer shrs 5 Target NI 79 Target shrs 7 All numbers are in millions. Note you will have to compute EPS before answering this question. Answer to one decimal place, ##.#

2. As an analyst, you need to calculate the combined earnings of a proposed merger between the Chocolatte and Bute Peanutt firms. Assume the merger is financed by debt of $20 million at 5%. The tax rate is 20%.

Chocolatte NI 35 Bute Peanutt NI 32 All numbers are in millions. Answer to one decimal place ##.#

3. Warrants increase the return to lenders and sometimes are necessary to secure financing. T/F 4. Cashflow LBOs are considered less risky for lenders. T/F 5. Unsecured LBO’s rely on cash flows to repay debt. T/F 6. Firms with assets that have a high collateral value can more easily obtain LBO loans T/F 7. A partial sellout is known as a leveraged recapitalization. T/F 8. Explain, in your own words, why there might be a conflict of interest in a management buyout.

9. What are two advantages that the Adjusted Present Value (APV) method has over the WACC based Discounted Cash Flow (DCF) method? 10. Briefly list and explain (in your own words) four key post-merger integration issues.

11. Explain, in your own words, how an LBO adds value.

12. Explain, in your own words, the advantages of a deal to purchase the target’s equity (as opposed to its assets).

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