QUESTION 2: Brimley Technologies (BT) is considering the acquisition of McCowan Industries (MI). BT has estimated...

 

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QUESTION 2: Brimley Technologies (BT) is considering the acquisition of McCowan Industries (MI). BT has estimated the following incremental benefits and investments: Incremental Year 0 1 2 3 4 5 to 10 Cash Flow Before Taxes $0 300,000 400,000 200,000 Incremental CCA $0 40,000 100,000 90,000 70,000 Incremental Investment BT 16 $3 $100,000 110,000 90,000 120,000 decline by 5% per year after year 4 At the end of 11 years MI will have a terminal value of $200,000. Additional Information P/E ratio EPS Shares outstanding 200,000 The marginal tax rate is 40%, and the discount rate is 15%. --== Incremental Net Working Capital $30,000 MI 10 $4 40,000 50,000 30,000 30,000 b. a. What is the NPV if BT acquires MI by using cash and paying a premium of 5%? What is the NPV if BT employs stock to acquire MI? BT will issue 0.9 new share in exchange for 1 share of MI? c. How many shares should be issued to MI's shareholders if BT would like to maintain cost of acquisition through stock same as the cost when cash is used. What will be the share price after the acquisition? QUESTION 2: Brimley Technologies (BT) is considering the acquisition of McCowan Industries (MI). BT has estimated the following incremental benefits and investments: Incremental Year 0 1 2 3 4 5 to 10 Cash Flow Before Taxes $0 300,000 400,000 200,000 Incremental CCA $0 40,000 100,000 90,000 70,000 Incremental Investment BT 16 $3 $100,000 110,000 90,000 120,000 decline by 5% per year after year 4 At the end of 11 years MI will have a terminal value of $200,000. Additional Information P/E ratio EPS Shares outstanding 200,000 The marginal tax rate is 40%, and the discount rate is 15%. --== Incremental Net Working Capital $30,000 MI 10 $4 40,000 50,000 30,000 30,000 b. a. What is the NPV if BT acquires MI by using cash and paying a premium of 5%? What is the NPV if BT employs stock to acquire MI? BT will issue 0.9 new share in exchange for 1 share of MI? c. How many shares should be issued to MI's shareholders if BT would like to maintain cost of acquisition through stock same as the cost when cash is used. What will be the share price after the acquisition?

Answer rating: 100% (QA)

What is the NPV if BT acquires MI by using cash and paying a premium of 5 The NPV if BT acquires MI by using cash and paying a premium of 5 is 2735714 ... View the full answer