Motoran Inc. is contemplating the acquisition of a competitor, Tortoran Corp., for $25 million. Motoran's market value
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Motoran Inc. is contemplating the acquisition of a competitor, Tortoran Corp., for $25 million. Motoran's market value is $40 million, whereas that of Tortoran is $20 million. Motoran expects that after the merger the administrative costs of the two companies will be reduced by $1 million forever. Motoran's cost of capital is 12.5 percent.
a. What would be the amount of wealth created by the merger?
b. What is the net present value of the acquisition?
Net Present ValueWhat is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Related Book For 
Finance for Executives Managing for Value Creation
ISBN: 978-0538751346
4th edition
Authors: Gabriel Hawawini, Claude Viallet
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