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What is the cost to ABM of each alternative

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Question - ABM is analysing the possible acquisition of PP restaurants. Neither firm has debt. The forecasts of ABM show that the purchase would increase its annual after-tax cash flow by $500,000 indefinitely. The current market value of the PP is $10 million. The current market value of ABM is $25 million. The appropriate discount rate for the incremental cash flows is 12.5 percent. ABM is trying to decide whether it would offer 30 percent of its stock or $11.5 million in cash to PP.

Required -

a. What is the synergy from the merger?

b. What is the value of PP to ABM?

c. What is the cost to ABM of each alternative?

d. What is the NPV to ABM of each alternative?

e. What alternative should ABM choose?

Reference no: EM132987730

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