Considering the acquisition of corporation

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F Corporation is considering the acquisition of T Corporation. Without the merger, T Corporation’s cash flow to capital is expected to be $3 million next year and is expected to grow at a constant 4 percent a year thereafter. With a merger, T Corporation’s constant growth rate will be increased to 6 percent. The tax rate is 30 percent and the after-tax required return is 12 percent.

Assume year-end cash flows.

a. What is the value of T’s capital if T is not acquired by F Corporation?

b. What is the value of T’s capital if T is acquired by F Corporation?

Reference no: EM131303910

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