BQ, Incorporated, is considering making an offer to purchase iReport Publications. The vice president of finance has collected the following information: BQ iReport Price-earnings ratio 12.2 8.8 Shares outstanding 1,500,000 165,000 Earnings $ 4,600,000 $ 680,000 Dividends $ 960,000 $ 410,000 BQ also knows that securities analysts expect the earnings and dividends of iReport to grow at a constant rate of 4 percent each year. BQ management believes that the acquisition of iReport will provide the firm with some economies of scale that will increase this growth rate to 6 percent per year.
BQ, Incorporated, is considering making an offer to purchase iReport Publications. The vice president of finance has collected the following information: BQ iReport Price-earnings ratio 12.2 8.8 Shares outstanding 1,500,000 165,000 Earnings $ 4,600,000 $ 680,000 Dividends $ 960,000 $ 410,000 BQ also knows that securities analysts expect the earnings and dividends of iReport to grow at a constant rate of 4 percent each year. BQ management believes that the acquisition of iReport will provide the firm with some economies of scale that will increase this growth rate to 6 percent per year.
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter11: Risk-adjusted Expected Rates Of Return And The Dividends Valuation Approach
Section: Chapter Questions
Problem 11PC: Whirlpool manufactures and sells home appliances under various brand names. IBM develops and...
Related questions
Question
BQ, Incorporated, is considering making an offer to purchase iReport Publications. The vice president of finance has collected the following information: |
BQ | iReport | |
---|---|---|
Price-earnings ratio | 12.2 | 8.8 |
Shares outstanding | 1,500,000 | 165,000 |
Earnings | $ 4,600,000 | $ 680,000 |
Dividends | $ 960,000 | $ 410,000 |
BQ also knows that securities analysts expect the earnings and dividends of iReport to grow at a constant rate of 4 percent each year. BQ management believes that the acquisition of iReport will provide the firm with some economies of scale that will increase this growth rate to 6 percent per year. |
a. |
What is the value of iReport to BQ? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
b. | What would BQ’s gain be from this acquisition? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
c. | If BQ were to offer $36 in cash for each share of iReport, what would the |
d. | What’s the most BQ should be willing to pay in cash per share for the stock of iReport? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
e. | If BQ were to offer 190,000 of its shares in exchange for the outstanding stock of iReport, what would the NPV be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT