Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter1: Introduction And Goals Of The Firm
Section: Chapter Questions
Problem 2.5CE: Energy entrepreneur T. Boone Pickens has proposed converting the trucking fleet in the United States...
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Cfood Co. is considering acquisition of Tfood Co. | ||
Some financial information on the two companies is given below (in $ million):
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Cfood Co. | Tfood Co. | |
Price per share | 49 | 13 |
# of shares | 10 | 2.5 |
Market value | 490 | 32.5 |
If Cfood acquires Tfood, the operating cost (after-tax) can be reduced by $2m, and sales (after-tax) can be increased by $3m (the synergies) per year in perpetuity. | ||
The cost of capital is 19%. | ||
Cfood is considering two alternatives for the acquistion: | ||
1. buying all the shares of Tfood at $15.6 per share. | ||
2. issuing 1 shares for every 3 shares of Tfood | ||
Workout on this merger deal and answer the following questions. | ||
i. What is the economic gain from the merger? | ||
ii. What will be the |
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v. What is the cost of merger under stock offering? Also compute the merger's NPV for Cfood's original shareholders. | ||
i. What is the economic gain from the merger? | ||
ii. What will be the NPV of merger under cash offer? | ||
iii. What will be the market value of merged company (Cfood after the acquition of Tfood) under the cash offer? | ||
iv. What is the cost of merger under stock offering? |
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