What is the cost of each alternative

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Question - Fresnillo plc is analysing the possible acquisition of Weir Group plc. Assume both firms have no debt. Fresnillo believes the acquisition will increase its total after-tax annual cash flows by £183 million indefinitely. The current market value of Weir Group is £1.3 billion and that of Fresnillo is £2.9 billion. The appropriate discount rate for the incremental cash flows is 12%. Fresnillo is trying to decide whether it should offer 50% of its equity or £1.6 billion in cash to Weir Group's shareholders.

(a) What is the cost of each alternative?

(b) What is the NPV of each alternative?

(c) Which alterative should Fresnillo choose?

Reference no: EM133074527

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