Situation Parent, Inc. is contemplating a tender offer to acquire 80 percent of Subsidiary Corpora 1 answer below »


Situation Parent, Inc. is contemplating a impressible present to reap 80 percent of Corroborative Corporation's low accumulation. Subsidiary's distributes are ordinaryly quoted on the New York Accumulation Exchange at $85 per distribute. In regulate to entertain a unintoxicated random of the impressible present calling 80 percent of Subsidiary's accumulation, Parent believes it succeed entertain to present at lowest $105 per distribute. If the impressible present is made and is fortunate, the dissipation succeed be consummated on January 1, 2009. A normal allot of the planning of a contemplated trade alliance is the provision of contemplated or pro forma indistinct financial statements. As a portion of Parent's recitaling order, you entertain been asked to plan the pro forma 2009 indistinct financial statements for Parent and Corroborative sumptuous that 80 percent of Subsidiary's accumulation is reapd at a appraisement of $105 per distribute. To buttress your computations, Martha Franklin, the chairperson of Parent's compensations committee, has supposing you delay the contemplated 2009 financial statements for Subsidiary. (The contemplated financial statements for Corroborative and diverse other companies were pland precedent for the compensation committee's use in targeting a audience for compensation.) The contemplated financial statements for Corroborative for 2009 and Parent's developed 2008 financial statements are presented in board 1. Assumptions Ms. Franklin has asked you to use the aftercited assumptions to scheme Parent's 2009 financial statements: • Sales succeed acception by 10 percent in 2009. • All sales succeed be on recital. • Accounts receivable succeed be 5 percent inferior on December 31, 2009, than on December 31, 2008. • Consume of consequence sold succeed acception by 9 percent in 2009. • All dissipations of goods succeed be on recital. • Accounts payable are expected to be $50,500 on December 31, 2009. • Register succeed be 3 percent preferable on December 31, 2009, than on December 31, 2008. • Straight-line deterioration is used for all agricultural property. • No agricultural property succeed be cheerful of during 2009. The annual deterioration on massive property is $40,000 per year. • Equipment succeed be dissipationd on January 1, 2009, for $48,000 coin. The equipment succeed entertain an estimated estate of 10 years delay no salvage compute. • Exempt expenses, other than deterioration, succeed acception by 14 percent in 2009. • All exempt expenses, other than deterioration, succeed be hired in coin. • Parent's pay tax objurgate is 40 percent, and taxes are hired in coin in four correspondent payments. Payments succeed be made on the 15th of April, June, September, and December. For plainness, mismisalienate taxable pay correspondents financial reverberationing pay precedently taxes. • Parent succeed live the $2.50 per distribute annual coin dividend on its low accumulation. • If the impressible present is fortunate, Parent succeed finance the compensation by issuing $170,000 of 6 percent non-convertible obligations at par on January 1, 2009. The obligations would primitive pay portion-out on July 1, 2009, and would pay portion-out semi-annually thereafter each January 1 and July 1 until manliness on January 1, 2019. • The compensation succeed be recitaled for as a dissipation and Parent succeed recital for the siege using the equity way. Although most of the juridical employment akin to the compensation succeed be influenceled by Parent's staff counsel, frequented consumes to plan and order the impressible present succeed completion $2,000 and succeed be hired in coin by Parent in 2009. As of January 1, 2009, all of Subsidiary's property and liabilities are spotlessly computed bar for machinery delay a is-sue compute of $8,000, an estimated spotless compute of $9,500, and a 5-year fostering profiboard estate. Misalienate that straight-line deterioration is used to amortize any revaluation increment. No transactions among these companies occurred former to 2009. Regardless of whether they incorporate, Parent plans to buy $50,000 of goods from Corroborative in 2009 and succeed entertain $3,600 of these dissipations fostering in register on December 31, 2009. In abstracted, Corroborative is expected to buy $2,400 of goods from Parent in 2009 and to entertain $495 of these dissipations in register on December 31, 2009. Parent and Corroborative appraisement their products to grant a 65 percent and 80 percent markup on consume, respectively.   Parent intends to use three financial yardsticks to indicate the financial attractiveness of the alliance. First, Parent wishes to reap Corroborative Corporation singly if 2009 indistinct hues per distribute succeed be at lowest as noble as the hues per distribute Parent would reverberation if no alliance takes fix. Second, Parent succeed cogitate the contemplated alliance uninteresting if it succeed action the indistinct ordinary pertinency to lapse beneath 2 to 1. Third, produce on middle accumulationholders' equity must sojourn aloft 20 percent for the incorporated being. If the financial yardsticks picturesquely aloft and the non-financial aspects of the alliance are appealing, then the impressible present succeed be made. On the other influence, if these objectives are not met, the compensation succeed either be restructured or determined. Required 1. Forecast the sepaobjurgate financial statements of Parent, Inc. Using Ms. Franklin's assumptions and Parent's 2008 financial statements, plan pro forma 2009 financial statements for Parent, Inc., sumptuous that the compensation is not attempted. Buttress your statements delay mismisalienate employment papers and narrative entries. Pro forma financial statements conceive Statement of Operation; Statement of Retained Earnings, Balance Sheet and Coin Flow Statement. 2. Classify the sepaobjurgate financial statements of Parent, Inc. to cogitate the contemplated compensation. Classify Parent's pro forma 2009 financial statements pland in #1 to cogitate the contemplated compensation (i.e., classify Parent's forecasted financial statements for obligation issuance, accumulation dissipation, pay from corroborative, etc.). Buttress your statements delay mismisalienate employment papers and narrative entries. Pro forma financial statements conceive Statement of Operation; Statement of Retained Earnings, Balance Sheet and Coin Flow Statement. 3. Plan pro forma indistinct employmentsheet. Plan a pro forma confederation employmentsheet for Parent, Inc. and its contemplated corroborative as of December 31, 2009. Use the classifyed pro forma 2009 financial statements of Parent, Inc. pland in #2 and the contemplated 2009 financial statements of Corroborative Corporation in board 1. Show all confederation classifying entries including lad portion-out entries. 4. Perform pertinency segregation. Compute hues per distribute for (1) the sepaobjurgate financial statements of Parent, Inc. pland in #1 and (2) the indistinct financial statements contained in the pro forma confederation employmentsheet pland in #3. Also, estimate ordinary pertinency and produce on middle accumulationholders' equity for the sepaobjurgate audience and indistinct financial statements. 5 Write a beginning to Ms. Franklin summarizing the results of your segregation, including a digest of the financial pertinencys you computed and your recommendation. Attach copies of twain sets of pro forma financial statements of Parent, Inc. and the pro forma confederation employmentsheet.   Table 1 Parent , Inc Developed Financial Statements for 2008 and Subsidiary Corporation Contemplated Financial Statements for 2009 Parent 2008 Developed Corroborative 2009 Projected Sales $ 800,000 $ 100,000 Cost of Consequence Sold (485,000) (55,000) Operating Expenses (219,000) (10,000) Income precedently Taxes 96,000 35,000 Income Tax Expense (38,400) (14,000) Net Pay $ 57,600 $ 21,000 Retained Hues January 1 $ 23,000 $ 14,500 Add Net Pay 57,600 21,000 Deduct Dividends (38,000) (7,000) Retained Hues December 31 $ 42,600 $ 28,500 Cash $ 36,200 $ 19,500 Accounts Receivable 39,000 13,000 Inventory 26,000 12,000 Property, Plant and Equipment 673,000 213,000 Accumulated Deterioration (490,000) (28,000) Total Property 284,200 229,500 Accounts Payable 44,600 21,000 Common Stock* 190,000 150,000 Paid-in Capital in Excess of Par 7,000 30,000 Retained Hues 42,600 28,500 Total Liabilities & Equities $ 284,200 $ 229,500 *Parent: $12.50 par compute. Subsidiary: $75 par compute