What is the premium of the merger

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Global Tours is analyzing the possible acquisition of Eastern Vacations. Due to the improved efficiency, Global Tours estimates that the combined firm could save $600,000 of annual after tax cash flows for the indefinite future. An investment bank estimates that Global Tours and Eastern Vacations are worth $30m and $15m respectively. Global Tours uses 15% opportunity cost of capital to discount its incremental cash flows.

Problem a. What is the synergy from the merger?

Problem b. If Global Tours offers $16m cash for Eastern Vacations, what is the premium (cost) of the merger? What is the NPV of the merger?

Problem c.
If Global Tours offers 35% of the combined firm to owners of Eastern Vacations, what is the premium (cost) of the merger? What is the NPV of the merger?

Reference no: EM132956097

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