Osiris Inc. is considering the acquisition of a competitor, Polos Corp. Osiris expects that the purchase would

Question:

Osiris Inc. is considering the acquisition of a competitor, Polos Corp. Osiris expects that the purchase would add $800,000 to its annual cash flow from assets indefinitely. Both firms are fully equity financed and do not carry any debt. The current market value of Osiris is $50 million, and that of Polos is $30 million. Osiris's cost of capital is 8 percent. Osiris hesitates between offering $20 million in cash and offering 25 percent of its shares to Polos's shareholders.

a. What is the value of the acquisition to Osiris?

b. What is the cost of Polos to Osiris under each alternative?

c. What is the net present value of the purchase to Osiris?

Net Present Value
What 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... Cash Flow From Assets
Cash flow from assets is the aggregate total of all cash flows related to the assets of a business. This information is used to determine the net amount of cash being spun off by or used in the operations of a business. The concept is comprised of... 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...