10 poincs Problem 21-9 Merger Gains and Costs (LO2) Velcro Saddles is contemplating the acquisition of Skiers Airbags Incorporated. The values of the two companies as separate enti are $34 million and $17 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketi and administrative costs by $570,000 per year in perpetuity. Velcro Saddles is willing to pay $25 million cash for Skiers'. The opportunity cost of capital is 5%. a. What is the gain from the merger? Note: Enter your answer in millions rounded to 2 decimal places. b. What is the cost of the cash offer? Note: Enter your answer in millions. c. What is the NFV of the acquisition under the cash offer? Note: Do not round Intermediate calculations. Enter your answer in millions rounded to 2 decimal places. Answer is complete but not entirely correct. 00 8 a. Gain from the merger S 9.50 million b. Cost of the cash offer S 251 million c. NPV S 1.50 milior

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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10
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Problem 21-9 Merger Gains and Costs (LO2)
Velcro Saddles is contemplating the acquisition of Skiers Airbags Incorporated. The values of the two companies as separate enti
are $34 million and $17 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketi
and administrative costs by $570,000 per year in perpetuity. Velcro Saddles is willing to pay $25 million cash for Skiers'. The
opportunity cost of capital is 5%.
a. What is the gain from the merger?
Note: Enter your answer in millions rounded to 2 decimal places.
b. What is the cost of the cash offer?
Note: Enter your answer in millions.
c. What is the NFV of the acquisition under the cash offer?
Note: Do not round Intermediate calculations. Enter your answer in millions rounded to 2 decimal places.
Answer is complete but not entirely correct.
00
8
a. Gain from the merger
S
9.50
million
b. Cost of the cash offer
S
251
million
c. NPV
S
1.50
milior
Transcribed Image Text:10 poincs Problem 21-9 Merger Gains and Costs (LO2) Velcro Saddles is contemplating the acquisition of Skiers Airbags Incorporated. The values of the two companies as separate enti are $34 million and $17 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketi and administrative costs by $570,000 per year in perpetuity. Velcro Saddles is willing to pay $25 million cash for Skiers'. The opportunity cost of capital is 5%. a. What is the gain from the merger? Note: Enter your answer in millions rounded to 2 decimal places. b. What is the cost of the cash offer? Note: Enter your answer in millions. c. What is the NFV of the acquisition under the cash offer? Note: Do not round Intermediate calculations. Enter your answer in millions rounded to 2 decimal places. Answer is complete but not entirely correct. 00 8 a. Gain from the merger S 9.50 million b. Cost of the cash offer S 251 million c. NPV S 1.50 milior
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