XYZ has annual revenues of $255 million and annual costs of $146 million. Annual depreciation expense is $45 million. The corporate tax rate is 35%. Suppose XYZ's total shares sell at a ratio of price to annual cash flow of 20 (market value=20*annual cash flow).

a. What is annual cash flow of XYZ?

b. What is the market value of XYZ?

c. ABC management is currently considering a merger with XYZ. Both companies are in the same industry, and both companies' shares sell at a ratio of price to free cash flow of 20. If the two companies merged, there is no reason to believe that this valuation multiple would change.

XZY has 8 million shares outstanding. Neither company has any debt. If ABC and XYZ were to merge, ABC believes that it could apply its superior management techniques to XYZ and thereby cut XYZ's annual cost in half. The two companies management teams are now trying to negotiate the terms of a merger. ABC management proposes to pay $300 cash for each XYZ share. What is the Net Present Value (NPV of this offer to ABC? What is the amount of premium paid

Answer rating: 100% (QA)

a What is the annual cash flow of XYZ First we need to calculate XYZs earnings before interest and taxes EBIT EBIT Revenues Costs EBIT 255 million 146 ... View the full answer