What are some takeover defenses? [21]
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, · Mergers are often amicably negotiated between the management and
directors of the two companies
· But If the seller is reluctant, the would-be buyer can decide to make a
tender offer for the stock.
· The defenses include shark repellents (changes in the company charter
meant to make a takeover more difficult to achieve) and poison pills
(measures that make takeover of the firm more costly)
How do firms measure capital structure? [13]
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· Capital structure is the proportion of each source of financing in total
market value
· The WACC formula is usually written assuming the firm's capital structure
includes just two classes of securities, debt and equity
· If there is another class, like preferred stock, the formula expands to
include it
· The weights in the WACC formula always add up to 1
What is WACC? [13]
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The company cost of capital is a weighted average of the returns
demanded by debt and equity investors. *The weighted average is the
expected rate of return investors would demand on a portfolio of all the
firm's outstanding securities.
Is there a rule for finding optimal capital structure? [16]
, Give this one a try later!
· No rule cause debt may be better than equity in some cases, or worse in
others.
· But there are at least four dimensions for the financial managers to think
about"
o Taxes
o Risk
o Asset Type
o Financial slack
How should the gains and costs of mergers to the acquiring firm be measured? [21]
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· A merger generates an economic gain if the two firms are worth more
together than apart
· The gain is the difference between the value for the merged firm and the
value of the two firms run independently.
· The cost is the premium that the buyer pays for the selling firm over its
value as a separate entity
· When payment is in the form of shares, the value of this payment naturally
depends on what those shares are worth after the merger is complete.
· You should go ahead with the merger if the gain exceeds the cost
Debt interest is... [16]
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a tax-deductible expense. Thus borrowing creates an interest tax shield.
The present value of future interest tax shields can be large, a significant
fraction of the
value of outstanding debt. Of course, interest tax shields are valuable only
Give this one a try later!
, · Mergers are often amicably negotiated between the management and
directors of the two companies
· But If the seller is reluctant, the would-be buyer can decide to make a
tender offer for the stock.
· The defenses include shark repellents (changes in the company charter
meant to make a takeover more difficult to achieve) and poison pills
(measures that make takeover of the firm more costly)
How do firms measure capital structure? [13]
Give this one a try later!
· Capital structure is the proportion of each source of financing in total
market value
· The WACC formula is usually written assuming the firm's capital structure
includes just two classes of securities, debt and equity
· If there is another class, like preferred stock, the formula expands to
include it
· The weights in the WACC formula always add up to 1
What is WACC? [13]
Give this one a try later!
The company cost of capital is a weighted average of the returns
demanded by debt and equity investors. *The weighted average is the
expected rate of return investors would demand on a portfolio of all the
firm's outstanding securities.
Is there a rule for finding optimal capital structure? [16]
, Give this one a try later!
· No rule cause debt may be better than equity in some cases, or worse in
others.
· But there are at least four dimensions for the financial managers to think
about"
o Taxes
o Risk
o Asset Type
o Financial slack
How should the gains and costs of mergers to the acquiring firm be measured? [21]
Give this one a try later!
· A merger generates an economic gain if the two firms are worth more
together than apart
· The gain is the difference between the value for the merged firm and the
value of the two firms run independently.
· The cost is the premium that the buyer pays for the selling firm over its
value as a separate entity
· When payment is in the form of shares, the value of this payment naturally
depends on what those shares are worth after the merger is complete.
· You should go ahead with the merger if the gain exceeds the cost
Debt interest is... [16]
Give this one a try later!
a tax-deductible expense. Thus borrowing creates an interest tax shield.
The present value of future interest tax shields can be large, a significant
fraction of the
value of outstanding debt. Of course, interest tax shields are valuable only
