his investment to be 10 percent. What is the benefit of the merger to the shareholders of The Carlson Card Gallery? Calculate the present value of the synergy of this merger. Estimate if any the benefit of the merger to the shareholders of Stanley Limited. Should the merger take place?
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The Stanley Shoppe Limited (SSL) wishes to acquire The Carlson Card Gallery for $400,000. The Carlson Card Gallery has 50,000 stocks outstanding which are currently quoted at $7 per share. Stanley expects the merger to provide incremental earnings of about $67,000 a year for 10 years. Ken Stanley, the CEO of SSL, has calculated the marginal cost of capital for this investment to be 10 percent.
- What is the benefit of the merger to the shareholders of The Carlson Card Gallery?
- Calculate the present value of the synergy of this merger.
- Estimate if any the benefit of the merger to the shareholders of Stanley Limited.
- Should the merger take place?
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- The owners of Arthouse Inc., a national artist supplies chain, are contemplating purchasing Craftworks Inc, a smaller chain. Arthouse's analysts project that the merger will result in incremental free flows and interest tax savings with a combined present value of $72.52 million, and they have determined that the appropriate discount rate for valuing Craftworks is 16%. Craftworks has 4 million shares outstanding and no debt. Craftworks' current price is $16.25. What is the maximum price per share that Arthouse should offer?. Hannahs is considering the acquisition of Shoe Clinic. . Hannahs has 43,000 shares outstanding at a market price of $32 a share. Shoe Clinic has 12,800 shares outstanding priced at $44 a share. The acquisition is expected to create $5,400 of synergy. What is the maximum amount of cash Hannahs should pay for this acquisition?Asteric Corporation is evaluating acquisition of Jumbo Corporation. Asteric Corporation believes that such a merger will result in cost savings with a present value of DKK 950,000. Asteric plans to make this deal in cash by offering DKK 75 a share for all the 50,000 shares of Jumbo Corporation. While they are still evaluating the offer, Jumbo's share price jumps from DKK 60 to DKK 70 per share. However, Asteric's CEO is not so happy about this jump and still believes that the true stand-alone price of Jumbo Corporation may be DKK 60 per share, and not DKK 70 per share. If you believe the CEO, analyze if this merger would be positive NPV for Asteric Corporation?
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- Kaplan Ltd is contemplating the acquisition of Baron Incorporation. The values of the two companies as separate entities are GH¢ 30 million and GH¢ 10 million, respectively. Kaplan estimates that by combining the two companies, it will reduce marketing and administration cost by GH¢ 700,000 per year in perpetuity. Kaplan can either pay GH¢ 15 million cash for Baron Inc, or offer Baron a 50% holding in the combined firm. The opportunity cost of capital is 10%. Required: 1. What is the NPV of the acquisition under the cash offer? 2. What is the NPV under the stock offer? 3. Discuss five (5) defense mechanisms that target firms should be allowed to put in place to resist possible takeoversCorporation A is deciding on an acquisition. Corporation A would buy all shares of corporation B, for a total of 500,000 shares of B. Currently, corporation B is expected to pay a constant dividend forever of $12 per share. The market price of B shares reflects these expectations, and the required rate of return is 4%. A can buy B shares at their current market price, and management expects to be able to exploit synergies between the two corporations and increase revenues. Thus, according to A’s management, if the acquisition takes place the dividend per share for next year is expected to be $12, but dividends are then expected to grow forever at a rate of 3% per year. The required rate of return on stock B would stay unchanged at 4%. What is the NPV of the acquisition? .Tom Corporation is considering the acquisition of Jerry Corporation. Jerry Corporation has free cash flows to debt and equity holders of $3,750,000. If Tom Corporations acquires Jerry Corporation, Jerry will reduce operating costs by $1,500,000. This will increase free cash flow to $4,900,000. Assume that cash flows occur at year-end and the weighted average cost of capital is 9%. a. What is the value of Jerry Corporation without a merger? o. What is the value of Jerry Corporation with the merger?
- Mega Pharma, Inc. (MPI) is considering merging with a smaller, independent company, SuperDrug, Ltd. (SDL). Using the appropriate discount rate of 12%, the analysts at MPI have determined that the purchase will increase its annual aftertax cash flow by 5 million indefinitely. SDL’s current market price is $50.25, and the firm has 5.5 million shares outstanding. What is the maximum price per share that MPI should offer to purchase SDL? (SHOW YOUR WORK)Tecumseh Inc. is analyzing the possible merger with Devonshire Inc. Savings from the merger are estimated to be a one-time after-tax benefit of $156 million. Devonshire Inc. has 5.2 million shares outstanding at a current market price of $82 per share. What is the maximum cash price per share that could be paid for Devonshire Inc.? (Omit "$" sign in your response.) Maximum cash price per share $Suppose that Flight Centre has made an offer for Webjet that consists of the cash purchase of 1.4 million shares at $13 per share. The value of Webjet’s stock before the bid was made public was $11 per share. Flight Centre’s stock is trading at $20 per share, and there are 20 million shares outstanding. Flight Centre estimates that the merger synergy will be $3.5 million per year, forever. The appropriate discount rate for these gains is 12%. What is the estimated value of the Flight Centre post-merger?