Sweet Cola Corporation (SCC) is bidding to take over Salty Dog Pretzels (SDP). SCC has 2,500 shares outstanding, selling at $30 per
share. SDP has 1,500 shares outstanding, selling at $15.50 a share. SCC estimates the economic gain from the merger to be $15,000.
a. If SDP can be acquired for $22 a share, what is the NPV of the merger to SCC?
b. What will SCC sell for, per-share, when the market learns that it plans to acquire SDP for $22 a share?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
c. What will SDP sell for, per share, if the market learns about the acquisition?
d. What are the percentage gains to the shareholders of each firm?
Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.
e. 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 $30, so instead of paying $22 cash, SCC issues 0.73 of its shares for every SDP share acquired. What will be the price of
the merged firm?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
f. What is the NPV of the merger to SCC when it uses an exchange of stock?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
a. NPV
b. Selling price
c. Selling price
d. SCC
d. SDP
e. Price
f. NPV
per share
per share
%
%
per share