(a) What is the value of the synergic gains from the merger? Your answer should be in millions and accurate to two decimal places (e.g., 10,500,000 should be entered as 10.50).                

Price           # of outstanding share

 

QUT 4.16$ 5 million

UQ 12$ 1.5 million

QUT Corp. wants to acquire UQ Corp. via tender offe

Both firms are unlevered firms, and the cost of capital is 11.5%. The corporate tax rate is 35%. After the merger, production capacity will be enhanced from 4M unit of output to 10M, while the sales price will be decreased from $12 to $10.5 per unit of output. In terms of costs, fixed costs will increase from $20M to $40M per year, but variable costs will be reduced from $6 to $5.5 per unit of output. In addition, there are reorganization costs of $2M per year for the first three years after the merger, including the merger year (i.e. reorganization costs of $2M are incurred from year 0 (the merger year) to year 3), and a one-time decrease in inventory requirement of $0.5M as a result of the merger.

Answer rating: 100% (QA)

To calculate the value of the synergic gains from the merger we need to consider the changes in prod... View the full answer