Bhupatbhai Problem 21-9 Merger Gains and Costs (LO2)Velcro Saddles is contemplating the acquisition of Skiers' Airbags Incorporated. The values of the two companies as separate entitiesare $58 million and $29 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketingand administrative costs by $690,000 per year in perpetuity. Velcro Saddles is willing to pay $34 million cash for Skiers'. Theopportunity cost of capital is 10%.a. What is the gain from the merger?Note: Enter your answer in millions rounded to 2 decimal places.b. What is the cost of the cash offer?Note: Enter your answer in millions.c. What is the NPV of the acquisition under the cash offer?Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.a. Gain from the mergerb. Cost of the cash offerc. NPVmillionmillionmillion

Part 2: Explanation:Step 1: Calculate the gain from the merger.The gain from the merger is the…

Answered: Problem 21-9 Merger Gains and Costs…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter26: Mergers And Corporate Control

Section: Chapter Questions

Problem 5P

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man.2 Orca Industries is considering the purchase of Shark Manufacturing. Shark is currently a supplier for Orca and the acquisition would allow Orca to better control its material supply. The current cash flow from assets for Shark is $6.9 million. The cash flows are expected to grow at 9 percent for the next five years before leveling off to 6 percent for the indefinite future. The costs of capital for Orca and Shark are 13 percent and 11 percent, respectively. Shark currently has 3 million shares of stock outstanding and $25 million in debt outstanding. What is the maximum price per share Orca should pay for Shark? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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3 Problem 16-142 (Algo) Tanner Corporation is considering the acquisition of... nner Corporation is considering the acquisition of a new machine that is expected to produce annual savings in cash operating costs $55,000 before income taxes. The machine costs $150,000, has a useful life of five years, and no salvage value. Tanner uses raight-line depreciation on all assets, is subject to a 10% Income tax rate, and has an after-tax hurdle rate of 10%. Year 123456 FV of $1 at FV of an ordinary annuity PV of $1 at PV of an ordinary annuity at 10% at 10% 10% 1.100 1.210 1.331 1.464 1.611 1.772 1.000 2.100 3.310 4.641 6.105 7.716 A. Rate of return B. Net present value 10% 0.909 0.826 0.751 0.683 0.621 0.564 equired: Compute the machine's accounting rate of return on the initial investment. . Compute the machine's net present value. Note: For all requirements, do not round Intermediate calculations. Round final answers to whole number. % 0.909 1.736 2.487 3.170 3.791 4.355 www
Value of a mixed stream Harte Systems, Inc., a maker of electronic survillance equipment, is considering selling the rights to market its home security system to a well-known hardware chain. The proposed deal calls for the hardware chain to pay Harte $28,000 and $29,000at the end of years 1 and 2 and to make annual year-end payments of $10,000 in years 3 through 9. A final payment to Harte of $10,000 would be due at the end of year 10. b. If Harte applies a required rate of return of 12% to them, what is the present value of this series of payments? c. A second company has offered Harte an immediate one-time payment of $90,000 for the rights to market the home security system. Which offer should Harte accept?
Differential Analysis Involving Opportunity Costs On July 1, Midway Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $148,600 of 5% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $148,600 Life of store equipment 16 years Estimated residual value of store equipment $17,400 Yearly costs to operate the warehouse, excluding depreciation of equipment depreciation of store equipment $56,900 Yearly expected revenues—years 1-8 75,300 Yearly expected revenues—years 9-16 69,100 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". For those boxes…
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Differential Analysis Involving Opportunity Costs On July 1, Midway Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $150,400 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $150,400 Life of store equipment 16 years Estimated residual value of store equipment $18,900 Yearly costs to operate the warehouse, excluding depreciation of equipment depreciation of store equipment $56,200 Yearly expected revenues—years 1-8 74,600 Yearly expected revenues—years 9-16 70,500 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". For those boxes…
Differential Analysis Involving Opportunity Costs On October 1, Midway Distribution Company is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $148,300 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $148,300 Life of store equipment 16 years Estimated residual value of store equipment $18,700 Yearly costs to operate the store, excluding depreciation of store equipment $56,300 Yearly expected revenues—years 1-8 $75,300 Yearly expected revenues—years 9-16 $70,600 Required: 1. Prepare a differential analysis as of October 1 presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter zero "0". Differential Analysis Operate…
Differential Analysis Involving Opportunity Costs On July 1, Matrix Stores Inc. is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $149,800 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $149,800 Life of store equipment 16 years Estimated residual value of store equipment $17,600 Yearly costs to operate the warehouse, excluding depreciation of equipment $56,100 Yearly expected revenues-years 1-8 76,000 Yearly expected revenues-years 9-16 70,400 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.

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