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What is the cost to ABC

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Question - ABC Inc. is planning to acquire XYZ Ltd. Neither firm has debt. The consulting firm hired by ABC says that the company can benefit from this acquisition by increasing its annual after-tax cash-flow by $580,000 forever. ABC has 2 million shares outstanding, which are traded at $12 per share. The current market value of XYZ is $15 million. The suitable discount rate for the incremental cash flows is 8%. Due to a lack of cash, ABC shareholders decide to offer 35% of its stock as considerations to XYZ. What is the cost to ABC?

Reference no: EM133079051

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