ABC company is going to acquire XYZ Inc. The values of the two companies as separate...
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ABC company is going to acquire XYZ Inc. The values of the two companies as separate entities are USD 20 million and USD 8 million, respectively. ABC company estimates that it will reduce operating costs by $1,000,000 per year in perpetuity by completing the merger. Suppose ABC company can either pay $16 million cash for XYZ Inc. or offer XYZ Inc. a 50% shareholding in ABC company. Assume that the opportunity cost of capital is 10%. What is the cost of the stock offered? ABC company is going to acquire XYZ Inc. The values of the two companies as separate entities are USD 20 million and USD 8 million, respectively. ABC company estimates that it will reduce operating costs by $1,000,000 per year in perpetuity by completing the merger. Suppose ABC company can either pay $16 million cash for XYZ Inc. or offer XYZ Inc. a 50% shareholding in ABC company. Assume that the opportunity cost of capital is 10%. What is the cost of the stock offered?
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