Mergers Acquisitions Question The Summarized Balance Sheet Of Target Ltd As At 31st 2851129

MERGERS & ACQUISITIONS QUESTION : The summarized balance sheet of Target Ltd as at 31st Dec 2018 is given below : LiabilitiesAmount ($)AssetsAmount ($) Equity share capital2000000.00Fixed assets1900000.00 (200000 shares @ $10 each)Investments100000.00 13% Preference share capital100000.00Inventories500000.00 Retained earnings400000.00Debtors400000.00 12% debentures300000.00Bank100000.00 Document Preview:

MERGERS & ACQUISITIONS QUESTION : The summarized balance sheet of Target Ltd as at 31st Dec 2018 is given below : LiabilitiesAmount ($)AssetsAmount ($) Equity share capital2000000.00Fixed assets1900000.00 (200000 shares @ $10 each)Investments100000.00 13% Preference share capital100000.00Inventories500000.00 Retained earnings400000.00Debtors400000.00 12% debentures300000.00Bank100000.00 Current liabilities200000.00 3000000.003000000.00 Negotiations for take-over of T ltd,result in its acquisition by A Ltd .The purchase consideration consists of (i) $ 330000 13% Debentures of A ltd for redeeming the 12% Debentures of T ltd. (ii) $ 100000 12 % Convertible preference shares in A Ltd for the payment of the Preference share capital of T Ltd. (iii) 150000 equity shares in T Ltd,to be issued at its current market price ($ 15) (iv) A Ltd would meet dissolution expenses (estimated to cost $ 30000.00). The break-up figures of eventual disposition by T Ltd of its unrequited assets and liabilities are Investments ($ 125000) , Debtors ($ 350000) , Inventories ($ 425000) and payment of current liabilities $ 190000 The project is expected to generate yearly operating CFAT of $ 700000.00 for 6 years. It is estimated that fixed assets of T Ltd would fetch $ 300000 t he end of the 6th year. The firm’s cost of capital is 15%. As a financial consultant, comment on the financial prudence of merger decision of A Ltd.

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