Tesaro is a biotech company developing ovarian cancer treatment. The company projects annual sales of $2,150M for
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Question:
A. Valuation.
(i) Find the fair value of Tesaro.
(ii) At its current price of $44, is Tesaro's stock over- or undervalued? Explain your answer.
B. Synergies. GSK is considering an acquisition of Tesaro. It belives that it can increase Tesaro's sales by 5% per year and increase the EBIT margin to 75% (depreciation stays as it is). GSK's cost of capital is 15%.
(i) What is the maximum price that GSK should pay for Tesaro? Explain your answer.
(ii) Should GSK use Tesaro's cost of capital or its own cost of capital to evaluate the deal? Why?
Related Book For
Cornerstones of Financial and Managerial Accounting
ISBN: 978-1111879044
2nd edition
Authors: Rich, Jeff Jones, Dan Heitger, Maryanne Mowen, Don Hansen
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