Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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Chapter 20, Problem 1P
Summary Introduction
To determine: Whether the merger should be done or not if the cost of capital of The Clark Corporation is 13%.
Introduction:
Net Present Value (
NPV is the difference between the PV (present value) of
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Velcro Saddles is contemplating the acquisition of Skiers’ Airbags Inc. The values of the two companies as separate entities are $20 million and $10 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $500,000 per year in perpetuity. Velcro Saddles is willing to pay $14 million cash for Skiers’. The opportunity cost of capital is 8%.
a. What is the gain from the merger?
b. What is the cost of the cash offer?
c. What is the NPV of the acquisition under the cash offer?
Please answer fast i give you upvote.
Velcro Saddles is contemplating the acquisition of Skiers’ Airbags Inc. The values of the two companies as separate entities are $50 million and $25 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $650,000 per year in perpetuity. Velcro Saddles is willing to pay $27 million cash for Skiers’. The opportunity cost of capital is 10%.
a. What is the gain from the merger? (Enter your answer in millions rounded to 2 decimal places.)
b. What is the cost of the cash offer? (Enter your answer in millions.)
c. What is the NPV of the acquisition under the cash offer? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
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
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Loose Leaf for Foundations of Financial Management Format: Loose-leaf
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