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Compute the synergy and the npv of the acquisition

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Question 1 - Penn Corp. is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total after-tax annual cash flows by $3.7 million indefinitely. The current market value of Teller is $103 million, and that of Penn is $151.7 million. The appropriate discount rate for the incremental cash flows is 9 percent. Penn is trying to decide whether it should offer 44 percent of its stock of $133 million in cash to Teller's shareholders.

a. Compute the synergy and the NPV of the acquisition to the acquirer in a cash acquisition.

b. What is the cost of the stock alternative and the corresponding NPV of the acquisition?

c. Which alternative is better for Penn Corp.?

Question 2 - Firm A is being acquired by Firm B for $54,000 worth of Firm B stock. The incremental value of the acquisition is $5,600. Firm A has 2,400 shares of stock outstanding at a price of $21 a share. Firm B has 2,700 shares of stock outstanding at a price of $50 a share.

a. What is the total number of shares outstanding of the combined entity?

b. What is the market price per share of the combined entity?

Reference no: EM133153286

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