Question 7 Fish Pies Inc. (FPI) has recently announced its intention to acquire Hamburgers 'R Us (HRU). FPI has identified potential annual gains from the acquisition of $250,000 per annum forever, with the first cash flow occurring exactly four years after the acquisition. If the acquisition were to proceed, FPI will however incur re-organization and integration costs of $300,000 per annum at the end of the first two years after the acquisition. Information about the two companies' relevant share prices and shares outstanding is provided below: Share price Number of shares outstanding Fish Pies Inc. $2.70 15,000,000 Hamburgers 'R Us $5.50 1,200,000 FPI has also decided to make a cash bid for all outstanding shares of HRU and offers $6.40 per share to HRU shareholders. The appropriate opportunity cost of capital is 12% per annum (a) Assuming the acquisition occurred immediately, calculate the gain from the acquisition. (b) Assuming the acquisition occurred immediately, calculate the total wealth impact for shareholders of Hamburgers 'R Us
Question 7 Fish Pies Inc. (FPI) has recently announced its intention to acquire Hamburgers 'R Us (HRU). FPI has identified potential annual gains from the acquisition of $250,000 per annum forever, with the first cash flow occurring exactly four years after the acquisition. If the acquisition were to proceed, FPI will however incur re-organization and integration costs of $300,000 per annum at the end of the first two years after the acquisition. Information about the two companies' relevant share prices and shares outstanding is provided below: Share price Number of shares outstanding Fish Pies Inc. $2.70 15,000,000 Hamburgers 'R Us $5.50 1,200,000 FPI has also decided to make a cash bid for all outstanding shares of HRU and offers $6.40 per share to HRU shareholders. The appropriate opportunity cost of capital is 12% per annum (a) Assuming the acquisition occurred immediately, calculate the gain from the acquisition. (b) Assuming the acquisition occurred immediately, calculate the total wealth impact for shareholders of Hamburgers 'R Us
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
Related questions
Question
Please try to solve it in 30 minute
Transcribed Image Text:Question 7
Fish Pies Inc. (FPI) has recently announced its intention to acquire Hamburgers 'R Us (HRU). FPI has
identified potential annual gains from the acquisition of $250,000 per annum forever, with the first cash
flow occurring exactly four years after the acquisition. If the acquisition were to proceed, FPI will
however incur re-organization and integration costs of $300,000 per annum at the end of the first two
years after the acquisition. Information about the two companies' relevant share prices and shares
outstanding is provided below:
Hamburgers 'R Us
$5.50
Fish Pies Inc.
Share price
Number of shares outstanding
$2.70
15,000,000
1,200,000
FPI has also decided to make a cash bid for all outstanding shares of HRU and offers $6.40 per share to
HRU shareholders. The appropriate opportunity cost of capital is 12% per annum
(a) Assuming the acquisition occurred immediately, calculate the gain from the acquisition.
(b) Assuming the acquisition occurred immediately, calculate the total wealth impact for shareholders of
Hamburgers 'R Us
Expert Solution
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
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education