# Question

Simpkins Trucking of Stillwater, Oklahoma, is also considering the acquisition of Armour Transport. Simpkins has analyzed the annual cash flows for Armour Transport and come up with these estimates for each of the three states of the economy shown below:

Simpkins’ management is much more optimistic about the economy than the management at Peterson (Problem). In fact, they estimate the probability of a recession next year at only 10 percent, the probability of a normal state of the economy at 50 percent, and the probability of expansion at 30 percent.

a. Based on Simpkins’ estimated probabilities for each state of the economy, what is your estimate of expected cash flows for the Armour Trucking company?

b. How do you think that Simpkins’ optimism about the state of the economy will impact the outcome of acquisition? Which company is more likely to complete the acquisition deal, other things beingequal?

Simpkins’ management is much more optimistic about the economy than the management at Peterson (Problem). In fact, they estimate the probability of a recession next year at only 10 percent, the probability of a normal state of the economy at 50 percent, and the probability of expansion at 30 percent.

a. Based on Simpkins’ estimated probabilities for each state of the economy, what is your estimate of expected cash flows for the Armour Trucking company?

b. How do you think that Simpkins’ optimism about the state of the economy will impact the outcome of acquisition? Which company is more likely to complete the acquisition deal, other things beingequal?

## Answer to relevant Questions

Floating Homes, Inc. is a manufacturer of luxury pontoon and house boats that sell for $40,000 to $100,000. To estimate its revenues for the following year, Floating Homes divides its boat sales into three categories based ...a. Calculate the missing information for each of the above projects.b. Note that Projects C and D share the same accounting break-even. If sales are above the break-even point, which project would you prefer? Explain why.c. ...Go-Power Batteries has developed a high-voltage nickel-metal hydride battery that can be used to power a hybrid automobile and it can sell the technology immediately to Toyota for $10 million. Alternatively, Go-Power ...Falon Corporation is issuing new common stock at a market price of $28. Dividends last year were $1.30 and are expected to grow at an annual rate of 7 percent, forever. What is Falon’s cost of common equity capital?The common stock for the Hetterbrand Corporation sells for $60, and the last dividend paid was $2.25. Five years ago the firm paid $1.90 per share, and dividends are expected to grow at the same annual rate in the future as ...Post your question

0