S$26-14$ Calculating NPV $[$LO$3]$

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

BQ iReport

Price$-$earnings ratio $14\mathrm{.}59\mathrm{.}2$

Shares outstanding $1,400,000195,000$

Earnings $ $4,300,000$ $ $705,000$

Dividends $ $1,075,000$ $ $375,000$

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$?$

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

b$.$ What would BQ$$s gain be from this acquisition?

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

c$.$ If BQ were to offer $$38$ in cash for each share of iReport, what would the NPV of the acquisition be$?$

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

d$.$ What$$s the most BQ should be willing to pay in cash per share for the stock of iReport?

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

e$.$ If BQ were to offer $205,000$ of its shares in exchange for the outstanding stock of iReport, what would the NPV be$?$

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

BQ$$s outside financial consultants think that the $7$ percent growth rate is too optimistic and a $6$ percent rate is more realistic.

f$-1.$ What is the value of iReport to BQ$?$

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

f$-2.$ What would BQ$$s gain be from this acquisition?

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

f$-3.$ If BQ were to offer $$38$ in cash for each share of iReport, what would the NPV of the acquisition be$?$

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

f$-4.$ What$$s the most BQ should be willing to pay in cash per share for the stock of iReport?

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

f$-5.$ If BQ were to offer $205,000$ of its shares in exchange for the outstanding stock of iReport, what would the NPV be$?$

Note: 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$.,32\mathrm{.}16.$