An all-equity company A has 10 shares outstanding. Its equity Beta is 1.25 and its perpetual annual
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An all-equity company A has 10 shares outstanding. Its equity Beta is 1.25 and its perpetual annual operating cashflow is expected to be $92. This company is considering acquisition of company B which has 5 shares outstanding, an equity Beta of 2/3 and its perpetual annual operating cashflow is expected to be $16. The expected market return is 10% and the risk-free interest rate is 4%.
- What would the price per share of company A shares if it acquires Company B with $240 cash payment?
- What would be the price per share of Company A shares if instead of $240 cash payment, it issues its shares currently worth $240 to company B?
- Explain with calculations the difference, if any, in Company A share prices in parts b and c.
Related Book For
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt , Eugene F. Brigham
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