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ABC is evaluating a proposed merger into DEF. ABC had 2009 earnings of $200,000, has 100,000 shares of common stock outstanding, and expects earnings to grow at an annual rate of 7%. DEF had 2009 earnings of $800,000, has 200,000 shares of common stock outstanding, and expects its earnings to grow at 3% per year.
(a) Calculate the expected earnings per share (EPS) for ABC for each of the next five years (2010-2014) without the merger.
(b) What would ABC's stockholders earn in each of the next 5 years (2010-2014) on each of their ABC shares swapped for DEF shares a a ratio of (i) 0.6 shares and (ii) 0.8 shares of DEF for one share of ABC?
(c) Graph the pre-merger and post-merger EPS figures developed in parts (a) and (b) with the year on the x axis and the EPS on the y axis.
(d) If you were the financial manager for ABC, which would you recommend from part (b): (i) or (ii)? Explain your answer.
Alcoa recently announced a new dividend policy. The firm said it would pay a base cash dividend of 40 cents per common share each quarter. For what types of firms would Alcoa's new dividend policy be appropriate? Explain.
Baird Bros. Construction is considering the purchase of machine at a cost of $125,000. The machine is expected to generate cash flows of $20,000 per year for 10 years and can be sold at the end of ten years for $10,000.
Can you please show me how to solve the following problems in M.S. excel? Please note that Present Value stands for present value.
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