Target Company has 1 million shares outstanding at a market price per share of $25. Parent...

 

Transcribed Image Text:

Target Company has 1 million shares outstanding at a market price per share of $25. Parent Company has 3 million shares outstanding at a market price of $40 a share. Neither firm has any debt. Parent Company is acquiring Target company for $23 million in cash and the incremental value of the acquisition is $5 million. i. 11. ii. What is the value of Target Company to Parent Company? Determine the net present value (NPV) of acquiring Target Company to Parent Company and briefly discuss if Parent Company should proceed with the acquisition. Calculate the value and price per share of Parent Company after acquisition. 111. The chief executive officer approaches you about acquisition decision. How do you respond to each of the following claims? i. Conglomerate acquisitions are good for shareholders because they help shareholders to diversify risk. ii. We should focus only on growth in earnings per share for making acquisition decision. Target Company has 1 million shares outstanding at a market price per share of $25. Parent Company has 3 million shares outstanding at a market price of $40 a share. Neither firm has any debt. Parent Company is acquiring Target company for $23 million in cash and the incremental value of the acquisition is $5 million. i. 11. ii. What is the value of Target Company to Parent Company? Determine the net present value (NPV) of acquiring Target Company to Parent Company and briefly discuss if Parent Company should proceed with the acquisition. Calculate the value and price per share of Parent Company after acquisition. 111. The chief executive officer approaches you about acquisition decision. How do you respond to each of the following claims? i. Conglomerate acquisitions are good for shareholders because they help shareholders to diversify risk. ii. We should focus only on growth in earnings per share for making acquisition decision.

Answer rating: 100% (QA)

1 Value of Target Company to Parent Company Target has 1 million shares outstanding worth 25 per sha... View the full answer