Reference no: EM133135886
Question - Genie has accumulated cash reserves of $8 million, and its CEO, Mr. Lionel Rich, believes that it is a good time to think about boosting Genie's sales growth by acquiring another company that is younger, with better growth opportunities. Mr. Rich has narrowed down the choice to one potential target: Aladdin Corporation.
Aladdin is a relatively young company; it has only been in business for five years. Its main products are a line of extremely popular espresso machines. Its shares are selling at $7.50 per share. It has 1,000,000 shares outstanding, and a WACC of 18%.
Mr. Rich estimates that the synergistic benefits from this acquisition will be $300,000 per year for the foreseeable future. His analysis also indicates that Genie can acquire Aladdin by paying $7.75 million in cash, or by swapping one Genie share for three Aladdin shares.
Required -
1. If Genie went ahead with the acquisition of Aladdin, what is the total value of the acquisition?
2. What is the maximum price per share that Genie should be willing to pay for this acquisition?