Anheuser LLC wants to acquire Busch LLC. Anheuser expects the acquisition to increase its cash flow from assets by $18 million per year forever, in addition to the cash flow from assets from Busch. The relevant discount rate for the incremental cash flows is 14%.

Both firms are purely equity financed. Anheuserhas 600 million shares outstanding and a market value (of equity and assets) of $800 million, while Busch has a market value of $200 million.

Anheuser has to decide if they should offer $277 million in cash or 31% of its stock for Busch. Ignore tax effects.

a)What is Anheuser's stock price after the acquisition for cash?

b)What is Anheuser's stock price after the acquisition for stock?

Answer rating: 100% (QA)

a To calculate Anheusers stock price after the acquisition for cash we need to first determine the new market value of Anheuser after the acquisition ... View the full answer