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Firm T (Target) Number of shares. 8,000 5,000
Price per share ($). 40 30
Debt ($) 150,000 120,000
Once the transaction is completed, then Firm T (operating as a standalone company) can generate annual cash flows of $ 38,000 for the initial 2 years, with the first cash flow taking place immediately, followed by perpetual annual flows of $ 28,000.
Firm T, realizing the very attractive synergy, will not accept any offer with less than 50% premium. Assume the discount rate used to be 12%.
What is the value of the synergy in PV terms?
a250,260$
b300,520$
c 310,520$
d270,260$
e280,260$
What is the NPV of this transaction?
a$ 75,520
b$ 83,260
c$ 85,520
d$ 85,260
e$ 83,520
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