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What is the value of jerry corporation without a merger

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Tom Corporation is considering the acquisition of Jerry Corporation. Jerry Corporation has free cash flows to debt and equity holders of $4,150,000. If Tom Corporations acquires Jerry Corporation, Jerry will reduce operating costs by $1,000,000. This will increase free cash flow to $5,000,000. Assume that cash flows occur at year-end and the weighted average cost of capital is 7%.

Problem a. What is the value of Jerry Corporation without a merger?

Problem b. What is the value of Jerry Corporation with the merger?

Reference no: EM132883193

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