Fundamentals of Financial Management, Third Edition

NUMERICAL PROBLEMS

1. Firm X is acquiring Firm Y. The financial position of the two firms is as follows:

    

   	Firm X	Firm Y
   Present earnings (Rs)	40,000	18,000
   Shares (no.)	10,000	6,000
   EPS (Rs)	4	3
   MPS (Rs)	60	30
   P/E ratio	15	10

   If Firm X pays Rs 40 for each share in Firm Y, find the value of the merged firm and the gains from the merger.

2. Firm A has a taxable income of Rs 1,40,000 and Firm B has incurred a loss of Rs 20,000. The tax rate is 30%. Find out if there is any tax saving as a sequel to the merger of A and B.
3. A is acquiring B and pays 40% premium for B’s shares. The financial position of the two companies prior to acquisition is given here respectively in the second and third columns below. Fill in ...