When a merger takes place between two companies to form a single firm, the target company to operate as a separate identity. Consider the following scenario: Three Waters Co. is considering an acquisition of Zebra Engineering Corp. (ZEC), and estimates that acquiring ZEC will result in incremental after-tax net cash flows in years 1-3 of $19.00 million, $28.50 million, and $34.20 million, respectively. After the first three years, the incremental cash flows contributed by the ZEC acquisition are expected to grow at a constant rate of 3% per year. Three Waters's current beta is 0.40, but its post-merger beta is expected to be 0.52. The risk-free rate is 3.5%, and the market risk premium is 5.60%. Based on this information, complete the following table by selecting the appropriate values (Note: Do not round intermediate calculations, but round

When a merger takes place between two companies to form a single firm, the target company to operate as a separate identity. Consider the following scenario: Three Waters Co. is considering an acquisition of Zebra Engineering Corp. (ZEC), and estimates that acquiring ZEC will result in incremental after-tax net cash flows in years 1-3 of $19.00 million, $28.50 million, and $34.20 million, respectively. After the first three years, the incremental cash flows contributed by the ZEC acquisition are expected to grow at a constant rate of 3% per year. Three Waters's current beta is 0.40, but its post-merger beta is expected to be 0.52. The risk-free rate is 3.5%, and the market risk premium is 5.60%. Based on this information, complete the following table by selecting the appropriate values (Note: Do not round intermediate calculations, but round

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter23: Corporate Restructuring

Section: Chapter Questions

Problem 7P

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Koala Technologies is considering the acquisition of Laser Industries in a stock-for-stock exchange. Selected financial data for the two companies is shown below. An immediate synergistic earnings benefit of $2.5 million is expected in this merger. Sales (millions) Net income (millions) Koala $90 $9.4 O a. $2.23 O b. $2.75 O c. $2.25 O d. $2.21 Laser $10 $1.2 Common shares outstanding (millions) 4.0 0.8 Earnings per share $2.35 $1.50 Common stock (price per share) $35.00 $27.00 Calculate the post-merger EPS if the Laser shareholders accept an offer of $33.25 a share in a stock-for-stock exchange
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Penn Corp. is analyzing the possible acquisition of Teller Company. Both believes the acquisition will increase its total aftertax annual cash flow by $1,272,653.1 indefinitely. The current market value of Teller is $23,042,111 and that of Penn is $62,440,594. The appropriate discount rate for the incremental cash flow is 14.22%. Penn is trying to decide whether it should offer 33% of its stock or $36,097,009 in cash to Teller's shareholders. What is the NPV of the stock offer? HINT: Subtract the equity cost (as computed in the previous problem) from the value of the combined firm.