Calculate the current price, Corporate Finance

a) Cookie Monster Inc. (a $15 billion snack food company) is considering acquiring Keebler Elves but is unsure of how much is should be willing to pay for the target firm.  At the moment, Keebler's 44 million shares are trading in the market for $67.54 but Cookie Monster's managers are convinced that its managers could tease out more value from their operations.  Specifically, they expect to be able to decrease corporate overhead and thus increase the growth rate of Keebler's dividends by 1% per year.  In order to capture these gains, Cookie Monster will also have to incur $65 million worth of after-tax restructuring costs at the end of the first year and another $40 million (after-tax) at the end of year 2. Keebler's dividend this year was $3.80 and the appropriate discount rate is 13%.  Assuming they can purchase the company for its current share price, how much would the Keebler acquisition be worth to Cookie Monster?

b) After consulting with their investment bankers, Cookie Monster's managers believe they will need to offer Keebler's shareholders a 10% premium above its current market price in order to secure its sale.  Furthermore, there is some uncertainty about how successful the integration of the new firm will be with the worst case scenario (20% chance of occurring) resulting in no change in Keebler's dividend growth.  Assuming a 100% cash deal, what is the maximum loss Cookie's shareholders can incur?

c) If Cookie Monster instead offers Keebler a 15% premium on its current price but the deal offers them new shares in Cookie Monster instead of cash, what is the maximum loss Cookie's shareholders original shareholders can incur?





Posted Date: 2/27/2013 6:30:57 AM | Location : United States

Related Discussions:- Calculate the current price, Assignment Help, Ask Question on Calculate the current price, Get Answer, Expert's Help, Calculate the current price Discussions

Write discussion on Calculate the current price
Your posts are moderated
Related Questions
Question: σ 2 t = β 0 + β 1 σ 2 t - 1 + λ 1 ε 2 t -1 (a) Interpret parameter 1 and 1 in model (1) and derive the long-term unconditional variance. (b) What

Mad Cat Inc. is debating between two alternative earth moving machines to use for the next 8 years.  The first supplier, Double Candle, offers the necessary machinery (CCA rate = 3

Q. What is phoenix activity? Phoenix activity is "the evasion of tax and other liabilities, such as employee entitlements, through the deliberate, systematic and sometimes cycl

Question: (a) With the help of illustrative and numerical examples differentiate fully speculation and arbitraging in the context of foreign exchange. (b) Shirley, a trade

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $825 per set and have a variable cost of $395 per set. The company has spent $150,000 for a mar

In this section, we will compare the ?ve forecasting methods using the case study data described in Section 4. Methods 1-3 will ?rst be compared for the full data set (assortment g

created the firm''s pro forma balance sheet for the next fiscal year?

Question 1: i) Check the nature of the efficient markets hypothesis (EMH). ii) Describe how the different forms of efficiency can be tested. Support your answer with some e

You have just graduated from Stanford''s MBA program and have secured a position as a fund manager for a well known investment banking house. You have been given $300 million to m