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Question 7 – M&A

A certain virus infects one in every 400 people. A test used to detect the virus in a person is positive 85% of the time if the person has the virus and 5% of the time if the person does not have the virus. (This 5% result is called a false positive.) Let A be the event “the person is infected” and B be the event “the person tests positive”. Find the probability that a person has the virus given that they have tested positive, i.e. find P(A|B). _______ Find the probability that a person does not have the virus given that they test negative, i.e. find P(A’|B’). _______

Acquiror company offers $60 per share for Target.  Target has 10M shares outstanding, and prior to the offer its stock price was $50. Acquiror expects the post-tax PV of synergies to be $60M.    Which of the following statements is most correct?

Based on the following assumptions, what the % premium paid by the buyer to acquirer the target? Target basic shares outstanding: 275.375 million Target options outstanding: 135.6 million Options weighted-average strike price: $13.80 Target share price (unaffected): $16.20 Offer price per share: $21.00 Buyer share price (pre-deal): $5.30 Express your answer as a percentage and round to the nearest tenth decimal place. For example, if your answer is 10.3%, then input “10.3”

Which of the following are examples of synergies? Closing of overlapping facilities Cost savings from headcount reductions Hiring a brand new marketing team Loss of sales due to overlapping customers

As the mass of an object increases, what happens to its inertia?

What is the formula for the treasury method of calculating dilution from options in the context of an M&A transaction?

Using Alaska Air Group’s 10-K, what is the number of restricted stock units (RSU’s) used for calculating the company’s market capitalization?

You are working with a colleague who says he has completed a DCF model for Autozone. He tells you he has made the following assumptions: Valuation date of December, 2020 (in other words, the first year of the explicit forecast period is FY2021) Cost of equity = 9% Cost of debt = 5% WACC = 10% Terminal growth rate assumption: 8% Marginal tax rate = 21% Marketable securities are not included in excess cash (for bridging from EV to implied share price) PP&E as a % of sales increases from 15% of sales in Year 1 to 25% of sales in Year 5, the end of the explicit forecast period Dividends of 10% of NOPAT are paid every year and reduce unlevered free cash flow Related to the list of assumptions above, name four things that are either wrong and/or unreasonable. Provide an explanation for each as to why it is wrong and/or unreasonable.

After reading Alaska Air Group’s 10-K, you find the following table on p. 37 of the MD&A section:    In addition, you read the following: Lease Return Costs (p. 61 in Note 2) “Alaska removed 40 leased aircraft from operating service in 2020, and recorded an estimate of the expected future lease return costs for the aircraft of $209 million to Special Items – Impairment Charges….. In 2021, the Company recorded a net benefit of $1 million associated with changes to these estimates.” Workforce Restructuring (p. 61 in Note 2) “In 2020….Alaska recorded $220 million in wage expense to Special Items – restructuring charges…..Throughout 2021, the Company continued to refine and update capacity expectations and training schedules, which resulted in changes to anticipated leave lengths. As a result, Alaska recorded a net benefit of $10 million during the year ended December 31, 2021.”   Assuming the impairment benefit, restructuring benefit and payroll support wage offset benefit are all one-time items, what was Alaska Air Group’s EBITDA for the year ended December 31, 2021?