None Stock versus Cash Offers (LO2) VelcroSaddles is contemplating theacquisition of Skiers' AirbagsIncorporated The values of the twoCompanies as separate entitiesare $58 Million and $29 million,respectively. Velcro Saddles estimatesthat by combining the two companies,it will reduce Marketing andadministrative costs by $690,000 peryear in perpetuity. Velcro Saddlesconsiders offering Skiers' shareholdersa 50% holding in Velcro Saddles.The opportunity cost of capitalis 10%. What is the value of the stockin the merged company held by theoriginal Skiers' shareholders? Note: Donot round intermediate calculations.Enter your answer in Millions roundedto 2 decimal places. What is the costof the stock alternative? Note: Donot round intermediate calculations.Enter your answer in Millions roundedto 2 decimal places. What is theMerger's NPV under the stock offer?Note: A negative amount should beindicated by a Minus sign. Do notround intermediate calculations.Enter your answer in Millions roundedto 2 decimal places.8:31 PM V

Velcro Saddles Acquisition Analysis1. Value of the Stock in the Merged Company:Combined Post-Merger…

Answered: Stock versus Cash Offers (LO2) Velcro…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 31P

See similar textbooks

Question

None

Stock versus Cash Offers (LO2) Velcro
Saddles is contemplating the
acquisition of Skiers' Airbags
Incorporated The values of the two
Companies as separate entities
are $58 Million and $29 million,
respectively. Velcro Saddles estimates
that by combining the two companies,
it will reduce Marketing and
administrative costs by $690,000 per
year in perpetuity. Velcro Saddles
considers offering Skiers' shareholders
a 50% holding in Velcro Saddles.
The opportunity cost of capital
is 10%. What is the value of the stock
in the merged company held by the
original Skiers' shareholders? Note: Do
not round intermediate calculations.
Enter your answer in Millions rounded
to 2 decimal places. What is the cost
of the stock alternative? Note: Do
not round intermediate calculations.
Enter your answer in Millions rounded
to 2 decimal places. What is the
Merger's NPV under the stock offer?
Note: A negative amount should be
indicated by a Minus sign. Do not
round intermediate calculations.
Enter your answer in Millions rounded
to 2 decimal places.
8:31 PM V

Expert Solution

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

URGENT Consider the following information for two all- equity firms, Firm Attrex and Firm Maliwan: Attrex Maliwan Shares 4800000 175000 outstanding Marketprice 30.83 371.43 per share Attrex estimates that the value of the synergistic benefit from acquiring Maliwan is yearly positive Cash Flow of $1,085,000 in perpetuity. Maliwan has indicated that it would accept a cash purchase offer of $525.715 per share. Attrex is thinking about offering 38% of their shares in exchange. How should Attrex proceed?
Systems has 6.45 billion shares outstanding and a share price of $17.25. Quisco is considering developing a new networking product in-house at a cost of $497 million. Alternatively, Quisco can acquire a firm that already has the technology for $899 million worth (at the current price) of Quisco stock. Suppose that absent the expense of the new technology, Quisco will have EPS of $0.828. a. Suppose Quisco develops the product in-house. What impact would the development cost have onQuisco's EPS? Assume all costs are incurred this year and are treated as an R&D expense, Quisco's tax rate is 40 %, and the number of shares outstanding is unchanged. b. Suppose Quisco does not develop the product in-house but instead acquires the technology. What effect would the acquisition have on Quisco's EPS this year? (Note that acquisition expenses do not appear directly on the income statement. Assume the firm was acquired at the start of the year and has no revenues or expenses of its own, so that the…
K Quisco Systems has 7.8 billion shares outstanding and a share price of $17.43. Quisco is considering developing a new networking product in house at a cost of $454 million. Alternatively, Quisco can acquire a firm that already has the technology for $932 million worth (at the current price) of Quisco stock. Suppose that absent the expense of the new technology, Quisco will have EPS of $0.66. a. Suppose Quisco develops the product in house. What impact would the development cost have on Quisco's EPS? Assume all costs are incurred this year and are treated as an R&D expense, Quisco's tax rate is 25%, and the number of shares outstanding is unchanged. b. Suppose Quisco does not develop the product in house but instead acquires the technology. What effect would the acquisition have on Quisco's EPS this year? (Note that acquisition expenses do not appear directly on the income statement. Assume the firm was acquired at the start of the year and has no revenues or expenses of its own, so…
Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 7 percent discount rate for their production systems. Year System 1 System 2 0 -$12,800 -$42,700 1 12,800 32,300 2 12,800 32,300 3 12,800 32,300 What are the payback periods for production systems 1 and 2? (Round answers to 2 decimal places, e.g. 15.25.) Payback period of System 1 is years and Payback period of System 2 is years If the systems are mutually exclusive and the firm always chooses projects with the lowest payback period, in which system should the firm invest? The firm should invest in .system 1 system 2
Quisco Systems has 7.1 billion shares outstanding and a share price of $17.79. Quisco is considering developing a new networking product in house at a cost of $532 million. Alternatively, Quisco can acquire a firm that already has the technology for $901 million worth (at the current price) of Quisco stock. Suppose that absent the expense of the new technology, Quisco will have EPS of $0.66. a. Suppose Quisco develops the product in house. What impact would the development cost have on Quisco's EPS? Assume all costs are incurred this year and are treated as an R&D expense, Quisco's tax rate is 25%, and the number of shares outstanding is unchanged. b. Suppose Quisco does not develop the product in house but instead acquires the technology. What effect would the acquisition have on Quisco's EPS this year? (Note that acquisition expenses do not appear directly on the income statement. Assume the firm was acquired at the start of the year and has no revenues or expenses of its own, so…
The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2:Year 0123 Cash flows (P1) -$53,000 27,000 27,000 27,000 Cash flow (P2) -$16,000 9,100 9,100 9,100a. If the discount rate is 10 percent and the company applies the profitability index (PI) decision rule, which project should the firm accept?b. If the firm applies the Net Present Value (NPV) decision rule, which project should it take?c. Are your answers in (a) and (b) different? Explain why?
The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2: Year 0 1 2 3 Cash flows (P1) -$53,000 27,000 27,000 27,000 Cash flow (P2) -$16,000 9,100 9,100 9,100 If the discount rate is 10 percent and the company applies the profitability index (PI) decision rule, which project should the firm accept? If the firm applies the Net Present Value (NPV) decision rule, which project should it take? Are your answers in (a) and (b) different? Explain why?
Company AB has a market value of GH¢50 million. Company CD has a market value of GH¢200 million. YY has determined that if it combines resources with AB, cost savings will be worth GH¢25 million today. On this basis, the CD makes an offer to buy AB. If CD makes a cash offer of GH¢65 million for all the shares of AB, what is the cost of this purchase to CD, what are the gains of this transaction, Suppose CD has issued 100 of its shares to its shareholders and is considering issuing 30 shares to the shareholders of AB, what is the cost of the share offer, what is the net present value of the transaction under the cash offer to CD, what is the net present value under the share offer?
Part 1 and Part II are independent. Please answer both parts. Part I: You are advising company ABC on its merger and acquisition case. The buyer company offers ABC two options. Option #1= $100 million cash at the acquisition date. Option #2 = $25 million cash at the acquisition date and another additional $90 million AFTER one year. The management team of ABC perceives a 30 percent annual discount rate. Which option should ABC choose? Show your work. Part II: What is the definition of internal rate of return (IRR) (it is efficient to write down the formula)? What are the given information and what is the unknown variable?
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 $
A PE firm has just offered to purchase a Facilties Services firm for $60/share. If the Facilities Services firm has 3 million shares outstanding, long-term debt of $90 million and Excess Cash of $20 million, what is Enterprise Value implied by the offer? O $200 million $250 million O $270 million $180 million $290 million

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

SEE MORE TEXTBOOKS