COMM 122 Lecture Notes - Lecture 1: Risk-Free Interest Rate, Foreign Exchange Spot, Callable Bond
15 May 2017
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Flannery (target): p/e = 5. 25, shares = 90,000, earnings = 450,000. Stultz (acquirer): p/e = 21, shares = 180,000, earnings = 675,000. *we get 1 stultz share, for every 3 flannery shares. Eps = (,000 + 675,000)/[180,000 + (1/3)(90,000)] = . 357. The cost = the number of shares offered x acquirer share price. Npv = 0 = v* + synergy cost = ,362,500 + synergy 2,362,500. Synergy value = after tax cash flow/discount rate = ,000 / 0. 08 = ,250,000. The value of target to acquirer = synergy + mv of target. Acquirer is offering 30% of its stocks, find stock acquisition value. Stock acquisition value = percentage x (mv of target + synergy + mv of acquirer) = 0. 30(,250,000 + 26,000,000) = ,675,000 cost of stock offer. Npv = value of the acquisition cost. Npv of cash offer = ,250,000 13,000,000 = ,250,000. Npv of stock offer = ,250,000 12,675,000 = ,575,000.
