T-Mobile has a current market value of $35 million and is considering the acquisition of Sprint, whose

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T-Mobile has a current market value of $35 million and is considering the acquisition of Sprint, whose current market value is $20 million. Both firms are all-equity. A market research study by the investment bank hired by T-Mobile shows that a purchase of Sprint will increase the after-tax cash flows of Sprint by $600,000 in perpetuity. The appropriate discount rate for the incremental cash flow is 8%.

a) What is the value of Sprint to T-Mobile?

b) T-Mobile is trying to decide whether to offer 25% of its own stocks or $21 million cash to shareholders of Sprint. If you were a shareholder of T-Mobile, which method of payment would you prefer for the acquisition of Sprint and why?

Posted Date: May 13, 2024 03:47 AM

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T-Mobile has a current market value of $35 million and is considering the acquisition of Sprint, whose

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a To calculate the value of Sprint to TMobile we need to determine the present value of the incremen... View the full answer

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