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What is the value of target to acquirer

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Reference no: EM132828163

Acquirer Inc. wants to acquire Target Corp. Acquirer expects the acquisition to increase its cash flow from assets by $4 million per year forever, in addition to the cash flow from assets from Target. The relevant discount rate for the incremental cash flows is 16%.

Both firms are purely equity financed. Acquirer has 50 million shares outstanding and a market value (of equity and assets) of $200 million, while Target has a market value of $100 million.

Acquirer has to decide if they should offer $108 million in cash or 59% of its stock for Target. Ignore tax effects.

a) How large is the synergy from the merger (in $ million)?

b) What is the value of Target to Acquirer (in $ million)?

c) What is the NPV of the cash offer (in $ million)?

d) What is the market value of the merged firm after the acquisition for cash (in $ million)?

e) What is Acquirer's stock price after the acquisition for cash?

f) What is the cost of the acquisition for stock (in $ million)?

Reference no: EM132828163

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