ne financial manager of Apple Co. is evaluating Banana quisition. Banana Co. is expected to produce annual sh flows of P1,500,000. Apple Co. will assume P1,0 p.'s long-term liabilities. Apple Co.'s weighted average 2% and Banana Co.'s weighted average cost of cap Equisition will be evaluated as a perpetuity. Apple Co.'s ading at P25 per share with 1,000,000 shares outstanding

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
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The following information refers to Questions No. 13 through 15:
The financial manager of Apple Co. is evaluating Banana Co. as a possible
acquisition. Banana Co. is expected to produce annual after-tax operating
cash flows of PI,500,000. Apple Co. will assume P1,000,000 of Banana
Co.'s long-term liabilities. Apple Co.'s weighted average cost of capital is
12% and Banana Co.'s weighted average cost of capital is 15%. The
acquisition will be evaluated as a perpetuity. Apple Co.'s common stock is
trading at P25 per share with 1,000,000 shares outstanding and a P/E ratio of
10. Banana Co.'s stock is trading at P15 per share with 600,000 shares
outstanding and a P/E ratio of 15.
Based on this information, the estimated market value of the target-
company is nearest
P 9,000,000.
b.
13.
a.
P10,000,000.
P11,000,000.
P11,500,000.
с.
d.
Transcribed Image Text:The following information refers to Questions No. 13 through 15: The financial manager of Apple Co. is evaluating Banana Co. as a possible acquisition. Banana Co. is expected to produce annual after-tax operating cash flows of PI,500,000. Apple Co. will assume P1,000,000 of Banana Co.'s long-term liabilities. Apple Co.'s weighted average cost of capital is 12% and Banana Co.'s weighted average cost of capital is 15%. The acquisition will be evaluated as a perpetuity. Apple Co.'s common stock is trading at P25 per share with 1,000,000 shares outstanding and a P/E ratio of 10. Banana Co.'s stock is trading at P15 per share with 600,000 shares outstanding and a P/E ratio of 15. Based on this information, the estimated market value of the target- company is nearest P 9,000,000. b. 13. a. P10,000,000. P11,000,000. P11,500,000. с. d.
14.
If the exchange ratio is 0.8, then the amount that Apple Co. will be
paying for Banana Co. is nearest
P10,000,000.
b.
a.
P11,000,000.
P12,000,000.
d.
с.
P18,750,000.
If the exchange ratio is 0.8, then the estimated post-merger earnings
per share for Apple Co. is nearest
P5.17.
15.
a.
b.
P1.77.
c.
Р3.10.
d.
P2.09.
Transcribed Image Text:14. If the exchange ratio is 0.8, then the amount that Apple Co. will be paying for Banana Co. is nearest P10,000,000. b. a. P11,000,000. P12,000,000. d. с. P18,750,000. If the exchange ratio is 0.8, then the estimated post-merger earnings per share for Apple Co. is nearest P5.17. 15. a. b. P1.77. c. Р3.10. d. P2.09.
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