Accounting cash flow? Harrison Ltd. is considering acquiringPugs International Inc. Pugs had cashflows of $15 million last year and has 2.5million shares outstanding which arecurrently selling at $29 per share. Thediscount rate for analysis has beencorrectly estimated at 14%.How much should Harrison be willing topay for Pugs in total and per share if thefirm is not expected to grow significantlyand management insists that acquisitionsbe justified by no more than ten years ofprojected cash flows?

Step 1:- Define Discounted Cash FlowThe discounted cash flow (DCF) is a valuation approach that…

Answered: Harrison Ltd. is considering acquiring…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Penn Corporation is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total aftertax annual cash flows by $1 million indefinitely. The current market value of Teller is $53 million, and that of Penn is $87 million. The appropriate discount rate for the incremental cash flows is 10 percent. Penn is trying to decide whether it should offer 40 percent of its stock or $59 million in cash to Teller's shareholders. a. Cash cost= a. Equity cost= b. NPV of cash offer= b. NPV of stock offer=
Penn Corporation is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total aftertax annual cash flow by $1 million indefinitely. The current market value of Teller is $53 million and that of Penn is $87 million. The appropriate discount rate for the incremental cash flows is 10 percent. Penn is trying to decide whether it should offer 40 percent of its stock or $59 million in cash to Teller's shareholders. a. What is the cost of each alternative? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the NPV of each alternative? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) $ 66,000,000,000,000 a. Cash cost a. Equity cost $ b. NPV cash b. NPV equity 66 c. Which alternative should Penn choose?
Penn Corp. is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total aftertax annual cash flows by $3 million indefinitely. The current market value of Teller is $49 million, and that of Penn is $85 million. The appropriate discount rate for the incremental cash flows is 10 percent. Penn is trying to decide whether it should offer 40 percent of its stock or $66 million in cash to Teller's shareholders. a. What is the cost of each alternative? (Enter your answers in dollars, not millions of dollars, e.g., 1,234,567.) Cash cost $66,000,000 Equity cost b. What is the NPV of each alternative? (Enter your answers in dollars, not millions of dollars, e.g., 1,234,567.) NPV cash NPV stock
Penn Corp. is analyzing the possible acquisition of Teller Company. Both believes the acquisition will increase its total aftertax annual cash flow by $1,176,015.93 indefinitely. The current market value of Teller is $23,453,722 and that of Penn is $63,348,212. The appropriate discount rate for the incremental cash flow is 13.63%. Penn is trying to decide whether it should offer 36% of its stock or $35,478,193 in cash to Teller's shareholders. What is the equity cost of the acquisition? HINT: Compute the value of the combined firm by adding the current value of the target with the present value of the differential cash flow of the combined firm. To determine the equity cost of the acquisition, add the current value of the acquirer and then multiply by the proposed percentage of the stock that has been offered for the firm.
Penn Corporation is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total aftertax annual cash flows by $1.45 million indefinitely. The current market value of Teller is $31.5 million, and that of Penn is $53 million. The appropriate discount rate for the incremental cash flows is 10 percent. Penn is trying to decide whether it should offer 40 percent of its stock or $44.5 million in cash to Teller’s shareholders. a. What is the cost of each alternative? (Enter your answers in dollars, not millions of dollars, e.g, 1,234,567.) b. What is the NPV of each alternative? (Enter your answers in dollars, not millions of dollars, e.g, 1,234,567.)
Penn Corp. is analyzing the possible acquisition of Teller Company. Both believes the acquisition will increase its total aftertax annual cash flow by $1,272,653.1 indefinitely. The current market value of Teller is $23,042,111 and that of Penn is $62,440,594. The appropriate discount rate for the incremental cash flow is 14.22%. Penn is trying to decide whether it should offer 33% of its stock or $36,097,009 in cash to Teller's shareholders. What is the NPV of the stock offer? HINT: Subtract the equity cost (as computed in the previous problem) from the value of the combined firm.
Penn Corp. is analyzing the possible acquisition of Teller Company. Both believes the acquisition will increase its total aftertax annual cash flow by $1,121,625.19 indefinitely. The current market value of Teller is $24,273,531 and that of Penn is $66,093,202. The appropriate discount rate for the incremental cash flow is 11.69%. Penn is trying to decide whether it should offer 30% of its stock or $37,299,371 in cash to Teller's shareholders. What is the NPV of the cash offer? HINT: Subtract the cash offer from the value of the combined firm.
Tecumseh Inc. is analyzing the possible merger with Devonshire Inc. Savings from the merger are estimated to be a one-time after-tax benefit of $156 million. Devonshire Inc. has 5.2 million shares outstanding at a current market price of $82 per share. What is the maximum cash price per share that could be paid for Devonshire Inc.? (Omit "$" sign in your response.) Maximum cash price per share $
. Hannahs is considering the acquisition of Shoe Clinic. . Hannahs has 43,000 shares outstanding at a market price of $32 a share. Shoe Clinic has 12,800 shares outstanding priced at $44 a share. The acquisition is expected to create $5,400 of synergy. What is the maximum amount of cash Hannahs should pay for this acquisition?
Orilla Ltd is considering expansion by acquiring Norioll Ltd. The market value of the equity in Oriolla is $ 126 million and Norioll is $ 21 million. The takeover is expected to increase in after-tax operating cash flows of $ 3 million in perpetuity. Orilla is considering a cash offer of $ 29.4 million to Norioll shareholders for all their shares OR issue new shares of Orilla to Norioll so that they will own 20 % of the combined entity after the merger. The cost of capital for both companies is 12 % a)What is the gain in present value terms for the merger? b) What are the cost of the cash offer and share offer to Oriolla? c) What is the NPV of the acquisitions from Oriolla's perspective of the cash offer and the share offer?
Kenneth Cole Productions (KCP) was acquired in 2012 for a purchase price of $15.02 per share. KCP had 18.4 million shares outstanding, $46.8 million in cash, and no debt at the time of the acquisition. a. Given a weighted average cost of capital of 10.9%, and assuming no future growth, what level of annual free cash flow would justify this acquisition price? b. If KCP's current annual sales are $475 million, assuming no net capital expenditures or increases in net working capital, and a tax rate of 40%, what EBIT margin does your answer in part (a) require? a. Given a weighted average cost of capital of 10.9%, and assuming no future growth, what level of annual free cash flow would justify this acquisition price? The level of annual free cash flow that would justify this acquisition price is $ million. (Round to two decimal places.)
Love Inc. believes that at its current share price of P16.00 the firm is undervalued. Makeover plans to repurchase 2.4 million of its 20 million shares outstanding. The Po Inc.’s managers expect that they can repurchase the entire 2.4 million shares at the expected equilibrium price after the repurchase. The Love Inc.’s current earnings are P44,000,000. If management’s assumptions hold, answer the following,1 .The current earnings per share is 2.What is the price to earnings ratio? 3.How much is the earnings per share after the repurchase? 4.What is the expected per-share market price after repurchase?

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS