What is the npv of this acquisition

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Question - M&A: Hendrix Reality Incorporation (HRI) is contemplating the acquisition of Collins Air Incorporation (CAI). The values of the two companies as separate entities are $20 million and $10 million, respectively. HRI estimates that by combining the two companies, it will reduce marketing and administrative costs by $500,000 per year in perpetuity. The opportunity cost of capital is 8%.

Required -

-If HRI is willing to pay $14 million cash for CAI, what is the NPV of this acquisition?

-Instead of making a cash offer, HRI is considering an alternative to offer CAI shareholders a 50% holding in HRI after acquisition. What would be the NPV of this merger pursuing this route then?

Reference no: EM132984806

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