BUSI 323 Homework 4 Consolidations, Mergers, and Capital Formation Assignment solutions answers

BUSI 323 Homework 4 Consolidations, Mergers, and Capital Formation Assignment solutions complete answers

 

Overview

The homework assignment will contain a variety of short answer and essay questions focusing on various theories/topics, assessing students’ recollection, understanding, and analysis of the material covered.

Instructions

Chapters 20–21

1.      Suppose that HCA and Tenet were to merge. Ignoring potential antitrust problems, how would this merger be classified?

2.      List some reasons that are good motives for mergers.

3.      Use the following data for a home health firm to answer questions.

 

4.      What is the current value of free cash flow?

5.      Using a 20 EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization), what is the value of the firm's equity?

6.      Dublin Medical (DM), a large established corporation with no growth in its real earnings, is considering acquiring 100% of the shares of Arlington Corporation, a young firm with a high growth rate of earnings. The acquisitions analysis group at DM has produced the following table of relevant data:

 

DM's analysts estimate that investors currently expect growth of about 6% per year in Arlington's earnings and dividends. They assume that with the improvements in management that DM could bring to Arlington, its growth rate would be 10% per year beginning one year from now with no additional investment outlays beyond those already expected.

7.      What is the expected gain from the acquisition?

8.      What is the net present value (NPV) of the acquisition to DM shareholders if it costs an average $30 per share to acquire all of the outstanding shares?

9.      Would it matter to DM's shareholders whether the shares of Arlington stock are acquired by paying cash or DM stock?

10.  Explain the difference between a joint venture and a merger.

11.  Explain the difference between a horizontal merger and a vertical merger.

12.  What are the four sources of long-term debt financing?

13.  What avenues are available for not-for-profit healthcare providers to increase their equity position?

14.  What avenues are available for for-profit healthcare providers to increase their equity position?

15.  What are the advantages to a tax-paying entity in issuing debt as opposed to equity?

16.  Does adding debt increase or decrease the flexibility of a healthcare provider? Why?

17.  A basis point equals how much? How many basis points are there between 6 5/8 % and 6 3/4%?

18.  What are the five characteristics of long-term debt financing?

19.  What factors might cause a facility to call in its bond? Name at least two.

20.  You wish to retire a $10,000,000 bond that can be called in 5 years for 110% of par value, or $11,000,000. You also need to make year-end interest payments of $700,000 per year in each of the next five years. If you can invest money at 8%, how much money must you set aside today to meet these obligations?

21.  You have decided to advance refund $10,000,000 of outstanding debt that is callable in five years. The interest rate on these bonds is 8%. You can issue new bonds at 6%. For every dollar of new debt issued, you will incur a 5% issuance cost. Interest payments on the present issue are $800,000 per year with no scheduled principal payments. How much new debt needs to be issued to realize defeasance of the present issue?