Motoran inc is contemplating the acquisition of a

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Motoran Inc. is contemplating the acquisition of a competitor, Tortoran Corp., for $25 million. Motoran market value is $40 million, whereas that of Tortoran is $20 million. Motoran expects that after the merger the administrative costs of the two companies will be reduced by $1 million forever. Motoran cost of capital is 12.5 percent.

a. What would be the amount of wealth created by the merger?

b. What is the net present value of the acquisition?

Reference no: EM13592229

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