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What is the total synergy generated in pv terms

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Reference no: EM132555018

The following table gives the information on the 2 companies for the year just ended:

Sport Unlimite (SU) Fast Track (FT)

Net earnings $5,000,000 $1,500,000

Number of shares 3,000,000 1,500,000

Price $18/share $15/share

Both SU and FT are in the sporting goods business. SU is thinking of acquiring FT with a mix offer of both cash and share swap.

SU Manager estimates that, if the acquisition goes ahead, then the combined company's net earnings will grow by 6% instead of 2% if the companies are to operate independently and such growth rates are perpetual. SU has a cost of capital of 12%.

SU would like to make an offer not to exceed 65% of the total synergy obtained as a result of the acquisition.

What is the total synergy generated in PV terms?

a$ 48.5 MM

b$ 47.5 MM

c$ 50.5 MM

d$ 52.5 MM

e$ 45.5 MM

What is the amount of premium offered to FT expressed as a percentage?

a50%

b55%

c45%

d35%

e40%

If the offer is made with 40% cash and 60% share swap, what is the value of the share swap?

a$ 20.5MM

b$ 18.9MM

c$ 17.9MM

d$ 19.5MM

e$ 21.9MM

Reference no: EM132555018

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