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?


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  • CreatedOctober 31, 2014
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