[LEVEL II 模拟试题6] Mock Level II - Question 4 模拟试题, class

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Question 4 - 8758

Premium Company has acquired the Discount Company on January 1 for $4 million by issuing 400,000 new shares. The following pre-acquisition balance sheet data is available for both companies. All income statement data is shown as of December 31 and has not been posted to the balance sheet data shown.

Premium Company

Current Assets	= $10,000,000
Property Plant & Equipment	= $30,000,000
Total Current Liabilities	= $5,000,000
Total Long Term Debt	= $15,000,000
Total Equity	= $20,000,000
Net Income	= $10,000,000
Shares Outstanding	= 5 million

The market value of Premium Company's PP&E is $40 million and the market value of its 10 year maturity long-term debt is $20 million.

Discount Company

Current Assets	= $500,000
Property Plant & Equipment	= $1,500,000
Total Current Liabilities	= $200,000
Total Long Term Debt	= $300,000
Total Equity	= $1,500,000
Net Income	= $750,000
Shares Outstanding	= 2 million

The market value of Discount Company's PP&E is $2 million and the market value of its 10 year maturity long-term debt is $400,000. The tax rate for both companies is 40 percent and PP&E for both firms is depreciated straight-line over 10 years. Goodwill is amortized over 20 years.

Part 1)
The consolidated property, plant, and equipment account as of the date of the acquisition is equal to:

A)	$32.0 million.
B)	$42.0 million.
C)	$31.5 million.
D)	$41.5 million.

Part 2)
The total equity of the consolidated firm immediately after the acquisition is equal to:

A)	$20.0 million.
B)	$25.5 million.
C)	$24.0 million.
D)	$21.5 million.

Part 3)
The book value per share of Premium Company before and immediately after the acquisition respectively is equal to:

A)	$3.07 per share and $2.90 per share.
B)	$4.00 per share and $3.07 per share.
C)	$3.07 per share and $3.44 per share.
D)	$4.00 per share and $4.44 per share.

Part 4)
The long-term debt-to-equity ratio immediately following the acquisition is closest to:

A)	64.2%.
B)	62.5%.
C)	63.7%.
D)	71.1%.

Part 5)
The goodwill as of the acquisition date is closest to:

A)	$2.5 million.
B)	$2.1 million.
C)	$4.0 million.
D)	$2.0 million.

Part 6)
The acquisition will cause Premium's current ratio to:

A)	decrease, from 0.500 to 0.495.
B)	increase, from 2.000 to 2.019.
C)	increase, from 0.495 to 0.500.
D)	decrease, from 2.019 to 2.000.

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Question

4 - #8758

Part 1)
Your answer: B was incorrect. The correct answer was A) $32.0 million.

Add the historical cost of Premium's PP&E to the fair market value of Discount's PP&E = $30 million + $2 million = $32 million.

Part 2)
Your answer: B was incorrect. The correct answer was C) $24.0 million.

Total equity equals the original equity of Premium Company plus the market value of equity that was issued to purchase Discount Company = $20 million + $4 million = $24 million.

Part 3)
Your answer: B was incorrect. The correct answer was D) $4.00 per share and $4.44 per share.

Book value per share prior to the acquisition is $20 million of equity divided by 5 million shares outstanding. Immediately following the acquisition, book value of equity rises to $24 million and the number of common shares outstanding is 5.4 million. Hence, book value per share is $24 million / 5.4 million = $4.44 per share.

Part 4)
Your answer: B was incorrect. The correct answer was A) 64.2%.

Use the book value of debt for Premium Company and the market value of debt for Discount Company in the computations. The book value of equity is the prior-to-acquisition book value for Premium plus the $4 million of newly issued equity. Hence, the ratio is $15.4 million / $24 million = 0.6416 or 64.2%.

Part 5)
Your answer: B was correct!

Goodwill is computed as: Purchase price of $4 million minus the FMV of Discount's net assets of $1.9 million = $2.1 million.

The FMV of Discount's assets is current assets of $500,000 plus the FMV of PP&E of $2 million = $2.5 million. The FMV of liabilities is current liabilities of $200,000 plus the FMV of the debt of $400,000 = $0.6 million. The FMV of Discount's net assets = $2.5 million - $0.6 million = $1.9 million.

Part 6)
Your answer: B was correct!

Premium's current ratio would increase from 2.000 to 2.19. 

Before Acquisition: ($10M / $5M) = 2.00 

After Acquisition: ($10M + 500,000) / ($5M + $200,000) = 2.019