Ridgetown NewsInc. is considering making an offer to purchase Orford Publications. The vice president of finance has collected the following information:

RIDGETOWN ORFORD

PRICE/EARNINGS RATIO 15.2 9.0

SHARES OUTSTANDING 1,100,000 160,000

EARNINGS $4,200,000 $660,000

DIVIDENDS $920,000 $370,000

Ridgetown also knows that securities analysts expect the earnings and dividends of Orford to grow at a constant rate of 4 percent each year. Ridgetown management believes that the acquisition of Orford will provide the firm with some economies of scale that will increase this growth rate to 6% per year.

a.What is the value of Orford to Ridgetown?(Do not round intermediate calculations. Round the final answer to 2 decimal places.Omit $ sign in your response.)

Value of report$

b.What would Ridgetown's gain be from this acquisition?(Do not round intermediate calculations. Round the final answer to 2 decimal places.Omit $ sign in your response.)

Gain$

c.If Ridgetown were to offer $40 in cash for each share of Orford, what would the NPV of the acquisition be?(Do not round intermediate calculations. Round the final answer to 2 decimal places.Omit $ sign in your response.)

NPV$

d.What's the most Ridgetown should be willing to pay in cash per share for the stock of Orford?(Do not round intermediate calculations. Round the final answer to 2 decimal places.Omit $ sign in your response.)

Maximum share price$

e.If Ridgetown were to offer 86,000 of its shares in exchange for the outstanding stock of Orford, what would the NPV be?(Do not round intermediate calculations. Round the final answer to 2 decimal places.Omit $ sign in your response.)

NPV$

f-1.Should the acquisition be attempted?

• Yes
• No

f-2.If so, should it be as in (c) or as in (e)?

Ridgetown should offer

A. 86,000 shares, OR

B. $40 in cash

Ridgetown's outside financial consultants think that the 6% growth rate is too optimistic and a 5% rate is more realistic.

g-1.What is the value of Orford to Ridgetown?(Do not round intermediate calculations. Round the final answer to 2 decimal places.Omit $ sign in your response.)

Value of report$

g-2.What would Ridgetown's gain be from this acquisition?(Do not round intermediate calculations. Round the final answer to 2 decimal places.Omit $ sign in your response.)

Gain$

g-3.If Ridgetown were to offer $40 in cash for each share of Orford, what would the NPV of the acquisition be?(Do not round intermediate calculations. Round the final answer to 2 decimal places.Omit $ sign in your response.)

NPV$

g-4.What's the most Ridgetown should be willing to pay in cash per share for the stock of Orford?(Do not round intermediate calculations. Round the final answer to 2 decimal places.Omit $ sign in your response.)

Maximum share price$

g-5.If Ridgetown were to offer 86,000 of its shares in exchange for the outstanding stock of Orford, what would the NPV be?(Do not round intermediate calculations. Round the final answer to 2 decimal places.Omit $ sign in your response.)

NPV$