90.2K

Verified Solution

Link Copied!

In calculating insurance premiums, the actuarially fair insurance premium is the premium that results in a zero NPV for both the insured and the insurer. As such, the present value of the expected loss is the actuarially fair insurance premium. Suppose your company wants to insure a building worth $270 million. The probability of loss is 1.40 percent in one year, and the relevant discount rate is 4.5 percent. a. What is the actuarially fair insurance premium? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar, e.g. 1,234,567.) b. Suppose that you can make modifications to the building that will reduce the probability of a loss to 85 percent. How much would you be willing to pay for these modifications? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar, e.g., 1,234,567.) or a Insurance premium b. Maximum cost ipc Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding Firm B Firm T Shares outstanding 5,400 2,000 Price per share $ 44 $ 18 Firm B has estimated that the value of the synergistic benefits from acquiring Firm Tis $9,200 a. If Firm T is willing to be acquired for $20 per share in cash, what is the NPV of the merger? b. What will the price per share of the merged firm be assuming the conditions in (a)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. If Firm T is willing to be acquired for $20 per share in cash, what is the merger premium? d. Suppose Firm Tis agreeable to a merger by an exchange of stock. If B offers one of its shares for every two of T's shares, what will the price per share of the merged firm be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) e. What is the NPV of the merger assuming the conditions in (d)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) b. 2 NPV Price per share Merger premium Price per share NPV d. e

Answer & Explanation Solved by verified expert

See Answer