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ADM 3350 Study Guide - Final Guide: Operating Lease, Call Option, Horizontal Integration

739 views7 pages
whitemammoth362
6 Feb 2015
School
University of Ottawa
Department
Administration
Course
ADM 3350
Professor
Kaouthar Lajili

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Document Summary

Suppose you work as a strategic financial manager at magiccom inc. , a large telecommunications firm which is considering making an offer to purchase sunnet inc. a smaller network company. You were asked by the vice president of finance to assess the profitability and projected outcome of this important financial decision. For that purpose, you collected the following information: You also know that securities analysts expect the earnings and dividends (currently sh. 88 per share) of sunnet to grow at a constant rate of 3% each year. Sunnet, what would the npv be? should it be as in c) or as in e) above: magiccom"s outside financial consultants think that the 5% growth rate is too optimistic and a 4% is more realistic. Suppose todd trucking company"s stock is trading for a share while hamilton company"s stock goes for a share. The eps of todd is while the eps of hamilton is . 50.

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Related Questions

Plant, Inc., is considering making an offer to purchase Palmer Corp. Plant’s vice president of finance has collected the following information:
Plant Palmer
Price–earnings ratio 15.5 11.1
Shares outstanding 1,600,000 850,000
Earnings $ 4,640,000 $ 1,173,000
Dividends $ 1,060,000 $ 480,000

Plant also knows that securities analysts expect the earnings and dividends of Palmer to grow at a constant rate of 3 percent each year. Plant management believes that the acquisition of Palmer will provide the firm with some economies of scale that will increase this growth rate to 5 percent per year.

a.

What is the value of Palmer to Plant? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Value of Palmer $

b.

What would Plant’s gain be from this acquisition? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Gain $

c.

If Plant were to offer $31 in cash for each share of Palmer, what would the NPV of the acquisition be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
NPV $
d.

What is the most Plant should be willing to pay in cash per share for the stock of Palmer? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Maximum bid price $
e.

If Plant were to offer 235,000 of its shares in exchange for the outstanding stock of Palmer, what would the NPV be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
NPV $

Plant's outside financial consultants think that the 5 percent growth rate is too optimistic and a 4 percent rate is more realistic.
f-1.

If Plant still offers $31 per share, what is the NPV with this new growth rate? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV $

f-2.

If Plant still offers 235,000 shares, what is the NPV with this new growth rate? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV $

As financial manager of Corton Inc., you are investigating a possible acquisition of Denham. You have the basic data given in the following table.

 

  Corton Denham
Forecast earnings per share   $ 8.40     $ 1.00  
Forecast dividend per share   $ 5.04     $ .53  
Number of shares     2,700,000       2,300,000  
Stock price   $ 90     $ 20  

 

You estimate that investors expect a steady growth of about 6% in Denham’s earnings and dividends. Under new management, this growth rate would be increased to 6.67% per year without the need for additional capital.
 
Required:

  1. What is the gain from the acquisition?
  2. What is the cost of the acquisition if Corton pays $25 in cash for each share of Denham?
  3. What is the cost of the acquisition if Corton offers one share of Corton for every one shares of Denham?
  4. How would the cost of the cash offer change if the expected growth rate of Corton was not changed by the merger?
  5. How would the cost of the share offer change if the expected growth rate was not changed by the merger?

 

 

BQ, Inc., is considering making an offer to purchase iReport Publications. The vice president of finance has collected the following information: BQ iReport Price–earnings ratio 13.4 9.4 Shares outstanding 1,200,000 190,000 Earnings $ 3,200,000 $ 610,000 Dividends $ 820,000 $ 270,000 BQ also knows that securities analysts expect the earnings and dividends of iReport to grow at a constant rate of 6 percent each year. BQ management believes that the acquisition of iReport will provide the firm with some economies of scale that will increase this growth rate to 8 percent per year. a. What is the value of iReport to BQ? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value of iReport $ 9604814.44 b. What would BQ’s gain be from this acquisition? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Gain $ c. If BQ were to offer $35 in cash for each share of iReport, what would the NPV of the acquisition be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ d. What’s the most BQ should be willing to pay in cash per share for the stock of iReport? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Maximum share price $ e. If BQ were to offer 230,000 of its shares in exchange for the outstanding stock of iReport, what would the NPV be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ BQ’s outside financial consultants think that the 8 percent growth rate is too optimistic and a 7 percent rate is more realistic. f-1 What is the value of iReport to BQ now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value of iReport $ f-2 What would BQ’s gain be from this acquisition? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Gain $ f-3 If BQ were to offer $35 in cash for each share of iReport, what would the NPV of the acquisition be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ f-4 What’s the most BQ should be willing to pay in cash per share for the stock of iReport? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Maximum share price $ f-5 If BQ were to offer 230,000 of its shares in exchange for the outstanding stock of iReport, what would the NPV be? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $