BQ, Incorporated, is considering making an offer to purchase iReport Publications. The vice president of finance has collected the following information: BQ iReport Price-earnings ratio 12.2 8.8 Shares outstanding 1,500,000 165,000 Earnings $ 4,600,000 $ 680,000 Dividends $ 960,000 $ 410,000 BQ also knows that securities analysts expect the earnings and dividends of iReport to grow at a constant rate of 4 percent each year. BQ management believes that the acquisition of iReport will provide the firm with some economies of scale that will increase this growth rate to 6 percent per year.
BQ, Incorporated, is considering making an offer to purchase iReport Publications. The vice president of finance has collected the following information: BQ iReport Price-earnings ratio 12.2 8.8 Shares outstanding 1,500,000 165,000 Earnings $ 4,600,000 $ 680,000 Dividends $ 960,000 $ 410,000 BQ also knows that securities analysts expect the earnings and dividends of iReport to grow at a constant rate of 4 percent each year. BQ management believes that the acquisition of iReport will provide the firm with some economies of scale that will increase this growth rate to 6 percent per year.
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
Section: Chapter Questions
Problem 1PS
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Question
|
BQ, Incorporated, is considering making an offer to purchase iReport Publications. The vice president of finance has collected the following information: |
| BQ | iReport | |
|---|---|---|
| Price-earnings ratio | 12.2 | 8.8 |
| Shares outstanding | 1,500,000 | 165,000 |
| Earnings | $ 4,600,000 | $ 680,000 |
| Dividends | $ 960,000 | $ 410,000 |
|
BQ also knows that securities analysts expect the earnings and dividends of iReport to grow at a constant rate of 4 percent each year. BQ management believes that the acquisition of iReport will provide the firm with some economies of scale that will increase this growth rate to 6 percent per year. |
| a. |
What is the value of iReport to BQ? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. | What would BQ’s gain be from this acquisition? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| c. | If BQ were to offer $36 in cash for each share of iReport, what would the |
| d. | What’s the most BQ should be willing to pay in cash per share for the stock of iReport? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| e. | If BQ were to offer 190,000 of its shares in exchange for the outstanding stock of iReport, what would the NPV be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
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