Cash versus Equity Payment Fresnillo plc, the silver and gold mining firm, is analysing the possible acquisition
Question:
Cash versus Equity Payment Fresnillo plc, the silver and gold mining firm, is analysing the possible acquisition of Weir Group plc, the Scottish-based engineering firm. Assume both firms have no debt. Fresnillo believes the acquisition will increase its total after-tax annual cash flows by £183 million indefinitely. The current market value of Weir Group is £1.3 billion and that of Fresnillo is £2.9 billion. The appropriate discount rate for the incremental cash flows is 12 per cent.
Fresnillo is trying to decide whether it should offer 50 per cent of its equity or £1.6 billion in cash to Weir Group’s shareholders.
(a) What is the cost of each alternative?
(b) What is the NPV of each alternative?
(c) Which alternative should Fesnillo choose?
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9780077178239
3rd Edition
Authors: David Hillier, Iain Clacher, Stephen A. Ross