Jack Pang is the financial controller of World Cruise Bhd. (World) and he is considering the possible acquisition of a smaller tour company, Sunrise Cruise Bhd. (Sunrise) by cash financing. He has to make a recommendation in the coming Board of Directors meeting on the proposed acquisition. He has the following financial information for both companies: World Cruise Bhd. RM5 Sunrise Cruise Bhd. Forecast earnings per share Forecast dividend per share Number of shares Price per share RM3.50 RM3 RM0.80 1,000,000 shares RM150 600,000 shares RM20 Jack Pang has estimated that the investors currently expect a steady growth of about 6% in Sunrise's earnings and dividends. He believes that World could increase Sunrise 's growth rate by 9% per year without any additional capital investment.
Jack Pang is the financial controller of World Cruise Bhd. (World) and he is considering the possible acquisition of a smaller tour company, Sunrise Cruise Bhd. (Sunrise) by cash financing. He has to make a recommendation in the coming Board of Directors meeting on the proposed acquisition. He has the following financial information for both companies: World Cruise Bhd. RM5 Sunrise Cruise Bhd. Forecast earnings per share Forecast dividend per share Number of shares Price per share RM3.50 RM3 RM0.80 1,000,000 shares RM150 600,000 shares RM20 Jack Pang has estimated that the investors currently expect a steady growth of about 6% in Sunrise's earnings and dividends. He believes that World could increase Sunrise 's growth rate by 9% per year without any additional capital investment.
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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i)Determine the gain for World Cruise Bhd. when it acquires Sunrise Cruise Bhd.
(ii) World Cruise Bhd. is proposing to finance by cash the deal to purchase all of Sunrise Cruise Bhd.’s issued shares and is offering a premium of 25% over the market price of Sunrise Cruise Bhd.’s shares.
Calculate the cost of acquisition of Sunrise Cruise Bhd.
(iii) Suggest what should be recommended by Jack Pang to the Board of Directors on the proposed acquisition of Sunrise Cruise Bhd. and why Sunrise’s shareholders should accept the offer.
Transcribed Image Text:Jack Pang is the financial controller of World Cruise Bhd. (World) and he is considering the
possible acquisition of a smaller tour company, Sunrise Cruise Bhd. (Sunrise) by cash
financing. He has to make a recommendation in the coming Board of Directors meeting on
the proposed acquisition. He has the following financial information for both companies:
World Cruise Bhd.
Sunrise Cruise Bhd.
Forecast earnings per share
Forecast dividend per share
Number of shares
Price per share
RM5
RM3.50
RM3
RM0.80
1,000,000 shares
600,000 shares
RM150
RM20
Jack Pang has estimated that the investors currently expect a steady growth of about 6% in
Sunrise's earnings and dividends. He believes that World could increase Sunrise 's growth
rate by 9% per year without any additional capital investment.
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