Problem 29-15 Calculating NPV

BQ, Incorporated, is considering making an offer to purchase iReport Corporation. BQs vice president of finance has collected the following information:

	BQ	iReport
Price-earnings ratio	15.3	10.8
Shares outstanding	1,580,000	830,000
Earnings	$ 4,550,400	$ 1,128,800
Dividends	$ 1,058,000	$ 478,000

BQ also knows that securities analysts expect the earnings and dividends of iReport to grow at a constant rate of 5 percent each year. BQ management believes that the acquisition of iReport will provide the firm with some economies of scale that will increase this growth rate to 7 percent per year.

a.	What is the value of iReport to BQ? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.	What would BQs gain be from this acquisition? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c.	If BQ were to offer $28 in cash for each share of iReport, what would the NPV of the acquisition be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
d.	What is the most BQ should be willing to pay in cash per share for the stock of iReport? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
e.	If BQ were to offer 233,000 of its shares in exchange for the outstanding stock of iReport, what would the NPV be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
BQ's outside financial consultants think that the 7 percent growth rate is too optimistic and a 6 percent rate is more realistic.
f-1.	If BQ still offers $28 per share, what is the NPV with this new growth rate? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
f-2.	If BQ still offers 233,000 shares, what is the NPV with this new growth rate? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

a. What is the value of iReport to BQ? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What would BQ's gain be from this acquisition? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. If BQ were to offer $28 in cash for each share of iReport, what would the NPV of the acquisition be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What is the most BQ should be willing to pay in cash per share for the stock of iReport? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) e. If BQ were to offer 233,000 of its shares in exchange for the outstanding stock of iReport, what would the NPV be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) BQ 's outside financial consultants think that the 7 percent growth rate is too optimistic and a 6 percent rate is more realistic. f-1. If BQ still offers $28 per share, what is the NPV with this new growth rate? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) f- If BQ still offers 233,000 shares, what is the NPV with this new growth rate? (Do not 2. round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)