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
Critically appraise how companies set their dividend policies, and explain the factors that a company will consider in setting its dividend policy and in determining the level of d

Need assitance with a capital budgeting problem and NPV

Question 1: (a) Describe the following stock market anomalies which have been documented in the finance literature: (i) the January effect (ii) the Size effect (iii) t

Question: i) The treasurer of a corporation is trying to choose between options and forwards contracts to hedge the corporation's foreign exchange risk. Discuss the relative

A key challenge for any analysis or discussion of phoenix activity is how to define the problem. There is currently no definition in Australian legislation. The approach in Austral

This subject has a major individual assignment consisting of a number of tasks (parts). The assignment has been designed with the aim of providing you a practical application case

Hi There; I’m looking for people who can complete three assignments for me. I’m looking for someone who can analyse three different empirical studies regarding stock or financial m

Baobab rolling mills owns a lathe machine which was purchased 10years ago at sh. 75 million. The machine had an expected life of 15 yrs at the time it was purchased, and management

What is an agent? What are the responsibilities of an agent? Ans: An agent is someone who has the implied or actual authority to act on behalf of another.  The owners whom the

You are a ceo of a sotware firm that has limited access to debt equity markets. The average return on last year projects is 28 % . and cost of capital is 12%. would npv pr Irr be