So what do you learn in the MSFSB Program? Join us for a classroom visit and see for yourself. Classes are offered Tuesday – Thursday at 4:30-7:10pm and 7:15-9:55pm. Stay for part or all of the evening. Contact the MSF Program office to make arrangements.

Not able to join us? We can’t cover everything, but here is a sample question from Financial Institutions Management that gives you a taste of what we have to offer:   

Financial Institutions Management

A cost-benefit framework for analyzing bank mergers and acquisitions:

• Let bank A be the acquiring firm and bank T be the target, their market capitalizations are VA and VT respectively.
• Let PT be the price paid for the target.

• Synergy exists when firms are worth more together than apart (e.g., 2+2=5).   
Benefit from the merger = VA&T-(VA + VT)
Cost to acquire the target (also called purchase premium) = PT - VT

Bank A should merge with Bank T if the benefit exceeds the cost, that is;

Benefit - Cost = (VA&T- VA - VT) - (PT - VT)>0, or
Benefit - Cost = VA&T - VA - PT >0

Example:

• Variable BankA BankT BankA&T
• Expected dividend (D1) $2.00 $1.50 $3.00
• Cost of capital (k)  0.12 0.10 0.12
• Growth rate (g)  0.08 0.05 0.09
• # of shares outstanding 1 mil. 1 mil. 1 mil.
• Share price  $50 $30 $100
• Total market value $50 mil. $30 mil. $100 mil.

(a) If it is a cash transaction, calculate the breakeven purchase price and breakeven cost or purchase premium.

Breakeven purchase price = PT that makes Benefit equal Cost.

Benefit - Cost = (VA&T- VA - VT) - (PT - VT) = (VA&T- VA - PT)
= (100 - 50 - PT) = 50 - PT

Breakeven PT = $50 million or $50 mil./1 mil. =    $50/share.
Breakeven cost or purchase premium = $50 - $30 = $20

(b) If instead of using cash, Firm B uses stocks to pay for the transaction.    Suppose they propose a stock exchange of four shares of Firm B for every five shares of Firm T.  Assume the total dividends paid are the same as in part (a).

Total Dividends = $3 x 1 mil. = $3 mil.
Dividend per share = $3 mil. / (1 mil. + 0.8 mil.) = $1.67/share
After-merger stock price = 1.67/(0.12-0.09)=$55.67
 
The true cost of the merger = $55.67 x 800,000 - 30,000,000 = $14,536,000