Problem 31-10 Merger gains and costs As financial manager of Corton Inc., you are investigating a possible acquisition of Denham. You have the basic data given in the following table. Corton Denham Forecast earnings per share Forecast dividend per share Number of shares Stock price 2$ 2$ 7.00 1.70 4.20 2$ .91 2,000,000 2$ 1,600,000 2$ 90 20 You estimate that investors expect a steady growth of about 6% in Denham's earnings and dividends. Under new management, this growth rate would be increased to 8.53% per year without the need for additional capital. Required: a. What is the gain from the acquisition? b. What is the cost of the acquisition if Corton pays $25 in cash for each share of Denham? c. What is the cost of the acquisition if Corton offers one share of Corton for every two shares of Denham? d. How would the cost of the cash offer change if the expected growth rate of Corton was not changed by the merger? e. How would the cost of the share offer change if the expected growth rate was not changed by the merger? (For all requirements, do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) Corton Denham Forecast earnings per share Forecast dividend per share 2$ 2$ 7.00 1.70 2$ 2,000,000 2$ 4.20 .91 Number of shares 1,600,000 2$ Stock price 90 20 You estimate that investors expect a steady growth of about 6% in Denham's earnings and dividends. Under new management, this growth rate would be increased to 8.53% per year without the need for additional capital. Required: a. What is the gain from the acquisition? b. What is the cost of the acquisition if Corton pays $25 in cash for each share of Denham? c. What is the cost of the acquisition if Corton offers one share of Corton for every two shares of Denham? d. How would the cost of the cash offer change if the expected growth rate of Corton was not changed by the merger? e. How would the cost of the share offer change if the expected growth rate was not changed by the merger? (For all requirements, do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) a. Gain million b. Cost million C. Cost million d. Cash offer million le. Share offer million
Problem 31-10 Merger gains and costs As financial manager of Corton Inc., you are investigating a possible acquisition of Denham. You have the basic data given in the following table. Corton Denham Forecast earnings per share Forecast dividend per share Number of shares Stock price 2$ 2$ 7.00 1.70 4.20 2$ .91 2,000,000 2$ 1,600,000 2$ 90 20 You estimate that investors expect a steady growth of about 6% in Denham's earnings and dividends. Under new management, this growth rate would be increased to 8.53% per year without the need for additional capital. Required: a. What is the gain from the acquisition? b. What is the cost of the acquisition if Corton pays $25 in cash for each share of Denham? c. What is the cost of the acquisition if Corton offers one share of Corton for every two shares of Denham? d. How would the cost of the cash offer change if the expected growth rate of Corton was not changed by the merger? e. How would the cost of the share offer change if the expected growth rate was not changed by the merger? (For all requirements, do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) Corton Denham Forecast earnings per share Forecast dividend per share 2$ 2$ 7.00 1.70 2$ 2,000,000 2$ 4.20 .91 Number of shares 1,600,000 2$ Stock price 90 20 You estimate that investors expect a steady growth of about 6% in Denham's earnings and dividends. Under new management, this growth rate would be increased to 8.53% per year without the need for additional capital. Required: a. What is the gain from the acquisition? b. What is the cost of the acquisition if Corton pays $25 in cash for each share of Denham? c. What is the cost of the acquisition if Corton offers one share of Corton for every two shares of Denham? d. How would the cost of the cash offer change if the expected growth rate of Corton was not changed by the merger? e. How would the cost of the share offer change if the expected growth rate was not changed by the merger? (For all requirements, do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) a. Gain million b. Cost million C. Cost million d. Cash offer million le. Share offer million
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Problem 31-10 Merger gains and costs
As financial manager of Corton Inc., you are investigating a possible acquisition of Denham. You have the basic data given in
the following table.
Corton
Denham
Forecast earnings per share
Forecast dividend per share
Number of shares
Stock price
2$
2$
7.00
1.70
4.20
2$
.91
2,000,000
2$
1,600,000
2$
90
20
You estimate that investors expect a steady growth of about 6% in Denham's earnings and dividends. Under new
management, this growth rate would be increased to 8.53% per year without the need for additional capital.
Required:
a. What is the gain from the acquisition?
b. What is the cost of the acquisition if Corton pays $25 in cash for each share of Denham?
c. What is the cost of the acquisition if Corton offers one share of Corton for every two shares of Denham?
d. How would the cost of the cash offer change if the expected growth rate of Corton was not changed by the merger?
e. How would the cost of the share offer change if the expected growth rate was not changed by the merger?
(For all requirements, do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.)
Transcribed Image Text:Corton
Denham
Forecast earnings per share
Forecast dividend per share
2$
2$
7.00
1.70
2$
2,000,000
2$
4.20
.91
Number of shares
1,600,000
2$
Stock price
90
20
You estimate that investors expect a steady growth of about 6% in Denham's earnings and dividends. Under new
management, this growth rate would be increased to 8.53% per year without the need for additional capital.
Required:
a. What is the gain from the acquisition?
b. What is the cost of the acquisition if Corton pays $25 in cash for each share of Denham?
c. What is the cost of the acquisition if Corton offers one share of Corton for every two shares of Denham?
d. How would the cost of the cash offer change if the expected growth rate of Corton was not changed by the merger?
e. How would the cost of the share offer change if the expected growth rate was not changed by the merger?
(For all requirements, do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.)
a.
Gain
million
b.
Cost
million
C.
Cost
million
d.
Cash offer
million
le.
Share offer
million
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