QUESTION 4 (a) XYZ Ltd is analysing the possible acquisition of ABC Group. The current market value of xyz Ltd is K8 million and ABC Group Pty Ltd is K6 million. It is estimated that the merger will generate a total annual after-tax cash flow of K1 million. The appropriate discount rate is for the incremental cash flow is 10%. Two offers are proposed: ii) iii) 1. Offer 50% of its shares 2. K6.5 million in cash. What is the cost of each alternative? What is the NPV of each alternative? Which alternative should XYZ use?
QUESTION 4 (a) XYZ Ltd is analysing the possible acquisition of ABC Group. The current market value of xyz Ltd is K8 million and ABC Group Pty Ltd is K6 million. It is estimated that the merger will generate a total annual after-tax cash flow of K1 million. The appropriate discount rate is for the incremental cash flow is 10%. Two offers are proposed: ii) iii) 1. Offer 50% of its shares 2. K6.5 million in cash. What is the cost of each alternative? What is the NPV of each alternative? Which alternative should XYZ use?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:QUESTION 4
(a) XYZ Ltd is analysing the possible acquisition of ABC Group.
The current market value of xyz Ltd is K8 million and ABC
Group Pty Ltd is K6 million. It is estimated that the merger will
generate a total annual after-tax cash flow of K1 million. The
appropriate discount rate is for the incremental cash flow is 10%.
Two offers are proposed:
1. Offer 50% of its shares
2. K6.5 million in cash.
i)
What is the cost of each alternative?
What is the NPV of each alternative?
ii)
iii)
Which alternative should XYZ use?
iv) Which alternative should ABC want?
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