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Velcro Saddles is contemplating the acquisition of Skiers' Airbags Incorporated The values of the two companies as separate are $52 million and $26 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce ma and administrative costs by $660,000 per year in perpetuity. Velcro Saddles considers offering Skiers' shareholders a 50% ho Velcro Saddles. The opportunity cost of capital is 10%. a. What is the value of the stock in the merged company held by the original Skiers' shareholders? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What is the cost of the stock alternative? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. c. What is the merger's NPV under the stock offer? Note: A negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your an millions rounded to 2 decimal places.

Velcro Saddles is contemplating the acquisition of Skiers' Airbags Incorporated The values of the two companies as separate are $52 million and $26 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce ma and administrative costs by $660,000 per year in perpetuity. Velcro Saddles considers offering Skiers' shareholders a 50% ho Velcro Saddles. The opportunity cost of capital is 10%. a. What is the value of the stock in the merged company held by the original Skiers' shareholders? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What is the cost of the stock alternative? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. c. What is the merger's NPV under the stock offer? Note: A negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your an millions rounded to 2 decimal places.

Essentials Of Investments
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
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Velcro Saddles is contemplating the acquisition of Skiers' Airbags Incorporated The values of the two companies as separate entities are $52 million and $26 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $660,000 per year in perpetuity. Velcro Saddles considers offering Skiers' shareholders a 50% holding in Velcro Saddles. The opportunity cost of capital is 10%. a. What is the value of the stock in the merged company held by the original Skiers' shareholders? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What is the cost of the stock alternative? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. c. What is the merger's NPV under the stock offer? Note: A negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. a. Value of the stock b. Cost of the stock c. NPV million million million
Transcribed Image Text:Velcro Saddles is contemplating the acquisition of Skiers' Airbags Incorporated The values of the two companies as separate entities are $52 million and $26 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $660,000 per year in perpetuity. Velcro Saddles considers offering Skiers' shareholders a 50% holding in Velcro Saddles. The opportunity cost of capital is 10%. a. What is the value of the stock in the merged company held by the original Skiers' shareholders? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What is the cost of the stock alternative? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. c. What is the merger's NPV under the stock offer? Note: A negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. a. Value of the stock b. Cost of the stock c. NPV million million million
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