PART A: Most Valuable Potatoes (MVP) is bidding to take over Tomatoes Kale Operators (TKO). MVP has 10,000 shares outstanding, selling at $60 per share. TKO has 6,000 shares outstanding, selling at $30 per share. Neither firm has debt. Both MVP and TKO have a Cost of Capital of 8.00%. MVP estimates that the synergies from the merger will increase its annual after-tax cash flow by $3,000 indefinitely. Using this information, answer the following using Excel: a) What is the value of the synergy from the merger? b) If TKO can be acquired for $33 cash per share, what is the NPV of the merger to MVP? c) The market is semi-strong efficient. What will MVP sell for when the market learns that it plans to acquire TKO for $33 a share? What will TKO sell for? What amount of the synergies do MVP's shareholders receive vs TKO's shareholders? d) Assuming TKO shareholder would prefer to be paid in MVP shares - how many shares would MVP need to issue in total for both parties to be indifferent between cash or shares? How many MVP shares would need to be offered per 1 TKO share (show your workings to 2 decimal places)?
PART A: Most Valuable Potatoes (MVP) is bidding to take over Tomatoes Kale Operators (TKO). MVP has 10,000 shares outstanding, selling at $60 per share. TKO has 6,000 shares outstanding, selling at $30 per share. Neither firm has debt. Both MVP and TKO have a Cost of Capital of 8.00%. MVP estimates that the synergies from the merger will increase its annual after-tax cash flow by $3,000 indefinitely. Using this information, answer the following using Excel: a) What is the value of the synergy from the merger? b) If TKO can be acquired for $33 cash per share, what is the NPV of the merger to MVP? c) The market is semi-strong efficient. What will MVP sell for when the market learns that it plans to acquire TKO for $33 a share? What will TKO sell for? What amount of the synergies do MVP's shareholders receive vs TKO's shareholders? d) Assuming TKO shareholder would prefer to be paid in MVP shares - how many shares would MVP need to issue in total for both parties to be indifferent between cash or shares? How many MVP shares would need to be offered per 1 TKO share (show your workings to 2 decimal places)?
Chapter14: Capital Structure Management In Practice
Section: Chapter Questions
Problem 34P
Related questions
Question
![PART A:
Most Valuable Potatoes (MVP) is bidding to take over Tomatoes Kale Operators (TKO).
MVP has 10,000 shares outstanding, selling at $60 per share. TKO has 6,000 shares
outstanding, selling at $30 per share. Neither firm has debt. Both MVP and TKO have a Cost
of Capital of 8.00%. MVP estimates that the synergies from the merger will increase its
annual after-tax cash flow by $3,000 indefinitely. Using this information, answer the
following using Excel:
a) What is the value of the synergy from the merger?
b) If TKO can be acquired for $33 cash per share, what is the NPV of the merger to MVP?
c) The market is semi-strong efficient. What will MVP sell for when the market learns that it
plans to acquire TKO for $33 a share? What will TKO sell for? What amount of the
synergies do MVP's shareholders receive vs TKO's shareholders?
d) Assuming TKO shareholder would prefer to be paid in MVP shares - how many shares
would MVP need to issue in total for both parties to be indifferent between cash or
shares? How many MVP shares would need to be offered per 1 TKO share (show your
workings to 2 decimal places)?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8517b0e0-843d-4aca-8ea9-fbdd0d22fd65%2Fce2112ac-48c3-4acf-b739-f4f6662fcc7a%2Fdcsxwi_processed.png&w=3840&q=75)
Transcribed Image Text:PART A:
Most Valuable Potatoes (MVP) is bidding to take over Tomatoes Kale Operators (TKO).
MVP has 10,000 shares outstanding, selling at $60 per share. TKO has 6,000 shares
outstanding, selling at $30 per share. Neither firm has debt. Both MVP and TKO have a Cost
of Capital of 8.00%. MVP estimates that the synergies from the merger will increase its
annual after-tax cash flow by $3,000 indefinitely. Using this information, answer the
following using Excel:
a) What is the value of the synergy from the merger?
b) If TKO can be acquired for $33 cash per share, what is the NPV of the merger to MVP?
c) The market is semi-strong efficient. What will MVP sell for when the market learns that it
plans to acquire TKO for $33 a share? What will TKO sell for? What amount of the
synergies do MVP's shareholders receive vs TKO's shareholders?
d) Assuming TKO shareholder would prefer to be paid in MVP shares - how many shares
would MVP need to issue in total for both parties to be indifferent between cash or
shares? How many MVP shares would need to be offered per 1 TKO share (show your
workings to 2 decimal places)?
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Recommended textbooks for you
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)