As financial manager of Corton Incorporated, you are investigating a possible acquisition of Denham Lathes. You have the basic data given in the following table.

Particulars Corton Denham

Forecast earnings per share $ $

Forecast dividend per share $ $

Number of shares

Stock price $ $

You estimate that investors expect a steady growth of about in Denhams earnings and dividends. Under new management, this growth rate would be increased to per year without the need for additional capital.

Required:

What is the gain from the acquisition?

What is the cost of the acquisition if Corton pays $ in cash for each share of Denham?

What is the cost of the acquisition if Corton offers one share of Corton for every three shares of Denham?

How would the cost of the cash offer change if the expected growth rate of Corton was not changed by the merger?

How would the cost of the share offer change if the expected growth rate was not changed by the merger?

Answer rating: 100% (QA)

To calculate the gain from the acquisition and the cost of the acquisition under different scenarios well use the following formulas Gain from the acq... View the full answer