The following information is used for both Parts A and B Rearden Metal currently has 10...

 

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The following information is used for both Parts A and B Rearden Metal currently has 10 million shares outstanding, earnings per share of $2, and a price per share of $20. Rearden Metal is planning to acquire Associated Steel and the takeover is expected to complete by the end of this year. Associated Steel currently has earnings per share of $1.25, 4 million shares outstanding, and a price per share of $15. Both companies have no debt in their capital structure. Rearden Metal has sought an independent valuation from an external financial analyst. The analyst estimates that acquiring Associated Steel would help Rearden Metal to increase after-tax cash flows by $500,000 by the end this year and then by $1,000,000 per annum in perpetuity thereafter. The cost of capital of Rearden Metal is 10% per annum. A. Assuming that Rearden Metal will offer a cash payment of $16 for each share of Associated Steel. (i) (ii) (iii) (i) (ii) (iii) What is the stock price of Rearden Metal after the takeover announcement? What is the net present value (NPV) of this takeover to Associated Steel and what is the net present value (NPV) of this takeover to Rearden Metal? B. Assuming that Rearden Metal will pay for Rearden Metal using its stocks with the exchange ratio of 0.8 (iv) What is the earnings per share of Rearden Metal and what is earnings per share of Associated Steel after the takeover? What is the stock price of Rearden Metal right after the takeover announcement? What is the stock price of Associated Steel right after the takeover announcement? What is the earnings per share of the combined firm after the takeover? Instead of offering the exchange ratio of 0.8, Rearden would like achieve an EPS of $3 in the combined firm after the takeover, what is the new exchange ratio? The following information is used for both Parts A and B Rearden Metal currently has 10 million shares outstanding, earnings per share of $2, and a price per share of $20. Rearden Metal is planning to acquire Associated Steel and the takeover is expected to complete by the end of this year. Associated Steel currently has earnings per share of $1.25, 4 million shares outstanding, and a price per share of $15. Both companies have no debt in their capital structure. Rearden Metal has sought an independent valuation from an external financial analyst. The analyst estimates that acquiring Associated Steel would help Rearden Metal to increase after-tax cash flows by $500,000 by the end this year and then by $1,000,000 per annum in perpetuity thereafter. The cost of capital of Rearden Metal is 10% per annum. A. Assuming that Rearden Metal will offer a cash payment of $16 for each share of Associated Steel. (i) (ii) (iii) (i) (ii) (iii) What is the stock price of Rearden Metal after the takeover announcement? What is the net present value (NPV) of this takeover to Associated Steel and what is the net present value (NPV) of this takeover to Rearden Metal? B. Assuming that Rearden Metal will pay for Rearden Metal using its stocks with the exchange ratio of 0.8 (iv) What is the earnings per share of Rearden Metal and what is earnings per share of Associated Steel after the takeover? What is the stock price of Rearden Metal right after the takeover announcement? What is the stock price of Associated Steel right after the takeover announcement? What is the earnings per share of the combined firm after the takeover? Instead of offering the exchange ratio of 0.8, Rearden would like achieve an EPS of $3 in the combined firm after the takeover, what is the new exchange ratio?

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