Company ACQ is planning to acquire Company TAR. ACQ currently has 1,600 shares outstanding and a...

  

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Company ACQ is planning to acquire Company TAR. ACQ currently has 1,600 shares outstanding and a share price of $55. TAR has 1,100 shares outstanding and a share price of $20. The synergy of the acquisition is estimated to be $11,000. (a) Calculate the cost of acquisition if TAR agrees to a cash offer of $22 per share. (Show your calculations). (1 mark) (b) What exchange ratio between the 2 stocks would make the actual cost of the stock offer identical to the cost of the cash offer of $12? (Show your calculations). (7 marks) (c) What is the maximum exchange ratio ACQ could offer in a stock acquisition and still generate a positive NPV? What is the maximum cash offer ACQ (price per share) could make and still generate a positive NPV? Briefly explain your answers. (Show your calculations). (7 marks) (d) Distinguish between a horizontal and a vertical type of acquisition. Give one example of each of the types. Company ACQ is planning to acquire Company TAR. ACQ currently has 1,600 shares outstanding and a share price of $55. TAR has 1,100 shares outstanding and a share price of $20. The synergy of the acquisition is estimated to be $11,000. (a) Calculate the cost of acquisition if TAR agrees to a cash offer of $22 per share. (Show your calculations). (1 mark) (b) What exchange ratio between the 2 stocks would make the actual cost of the stock offer identical to the cost of the cash offer of $12? (Show your calculations). (7 marks) (c) What is the maximum exchange ratio ACQ could offer in a stock acquisition and still generate a positive NPV? What is the maximum cash offer ACQ (price per share) could make and still generate a positive NPV? Briefly explain your answers. (Show your calculations). (7 marks) (d) Distinguish between a horizontal and a vertical type of acquisition. Give one example of each of the types.