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What is the amount of the expected synergy

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Reference no: EM132368001

Suppose you were involved in the Disney/Pixar merger and neither firm has debt.

Disney thinks that upon merging, it will save $70,000 annually in after-tax movie-distribution costs, indefinitely. Further suppose that Pixar's current market value is $7 million, while Disney's current market value is $80 million. The appropriate discount rate for the merger is 10%.

  1. What is the $ amount of the expected synergy?
  2. What is the value of Pixar to Disney?
  3. If Disney offers Pixar $7.5 million in cash, what is the NPV of the merger to Disney's current shareholders?
  4. If Disney is trading at $80 before the merger, how many shares of Disney stock should they offer Pixar to mimic the $7.5 million cash offer?

Reference no: EM132368001

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