An offer to buy micro corporation

Assignment Help Finance Basics
Reference no: EM13716725

In early 2011 Giant Inc.'s management was considering making an offer to buy Micro Corporation. Micro's projected operating income (EBIT) for 2011 was $30 million, but Giant believes that if the two firms were merged, it could consolidate some operations, reduce Micro's expenses, and raise its EBIT to $35 million. Neither company uses any debt, and they both pay income taxes at a 35% rate. Giant has a better reputation among investors, who regard it as very well managed and not very risky, so its stock has a P/E ratio of 12 versus a P/E of 9 for Micro. Since Giant's management would be running the entire enterprise after a merger, investors would value the resulting corporation based on Giant's P/E. If Micro has 10 million shares outstanding, by how much should the merger increase its share price, assuming all of the synergy will go to its stockholders?

 

Reference no: EM13716725

Questions Cloud

Define and discuss data warehouses : Prepare a short written assignment of 3 pages that investigates the following topic. Define and discuss data warehouses, data marts, and data mining in your paper. Also include discussion on business intelligence, online analytic processing (O..
Use of the payback period criterion seem more reasonable : In some countries, the expropriation (seizure) of foreign investments is a common practice. If you were considering an investment in one of those countries, would the use of the payback period criterion seem more reasonable than it otherwise m..
Differences between ben bernanke and alan greenspan : Discuss similarities and differences between Ben Bernanke and Alan Greenspan in their respective roles as chairman of the Federal Reserve Board. As possible, refer to recent events.
How do international factors affect decision making : How do international factors affect decision making? Although the same basic principles of capital budgeting apply to both foreign and domestic operations, there are some key differences. For example, cash flows must be converted into the paren..
An offer to buy micro corporation : In early 2011 Giant Inc.'s management was considering making an offer to buy Micro Corporation. Micro's projected operating income (EBIT) for 2011 was $30 million, but Giant believes that if the two firms were merged, it could consolidate some..
The cost of debt capital is 10%. : VWX Corporation has an EBIT of $166,666.67, a corporate tax rate of 40%, debt of $500,000, and unlevered cost of capital of 20%. The cost of debt capital is 10%.
What price must a company typically pay : 1. What price must a company typically pay to buy another company? The price will: include some premium over the current market value of the target's equity. include some discount relative to the current market value of the target's equity.
What tendencies about flotation costs : As a recent business school graduate, you work directly for the corporate treasurer. Your corporation is going to issue a new security and is concerned with the probable flotation costs. What tendencies about flotation costs can you relate to ..
Everyone-men, women, and children : Is it desirable and possible for "everyone-men, women, and children" to "go back to the kitchen," and what obstacles do you see in the way creating such a movement or trend? How does another essay () confirm or complicate Flammang's ideas?

Reviews

Write a Review

 

Finance Basics Questions & Answers

  What is included in other comprehensive income

What is included in other comprehensive income? Why are items included in other comprehensive income, but not included in net income? Should these items be included in net income, or not included at all?

  What does warren buffett seem to fear most about financial

In his 2002 letter to shareholders, what does Warren Buffett seem to fear most about financial derivatives?

  What to two decimal place accuracy is the cash price

It is April 1. The quoted price of a bond with an Actual/365 day count and 12% per annum coupon in the U.S. is 105. It has a face value of 100 and pays coupons on March 1 and Sept 1. What, to two decimal place accuracy, is the cash price?

  How much money will your parents have at the end

You plan to work on a master's and perhaps a PhD. If graduate school costs $24,580 per year, approximately how long will you be able to stay in school based on these funds?

  What are some of the advantages and disadvantages of

1- what are some of the advantages and disadvantages of ethical egoism as an ethical philosophy for business

  Effective annual rate of stretching accounts payable

C++ Notes is booming, and it requires to raise more capital. The corporation purchases supplies from a single supplier on terms of 1/10, net 20 days, and it currently takes the discount.

  A close end investment company is currently selling for 10

a close end investment company is currently selling for 10 and you purchase 100 shares. during the year the company

  Global investments-mergers questions

Which of the two long-term financing securities (debt or equity) would potentially maximize shareholder earnings more?

  The estimates of the manufacturing overhead and of

acitelli corporation which applies manufacturing overhead on the basis of machine-hours has provided the following data

  Calculate the investment amount

Melissa Gould wants to invest today in order to assure adequate funds for her son's college education. She estimates that her son will need $20,000 at the end of 18 years;

  Compute the principal balance on the loan

You take out a thirty year $100,000 mortgage loan with an APR of 6% and monthly payments. In 12 years you decide to sell your house and pay off the mortgage.

  Stock y has a beta of 14 and an expected return of 152

stock y has a beta of 1.4 and an expected return of 15.2 percent. stock z has a beta of 0.7 and an expected return of

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd