Question
10. Assume that the target firm will generate $10 million FCFs next year (with growth rate=5%) and that the cost of capital for this firm
10. Assume that the target firm will generate $10 million FCFs next year (with growth rate=5%) and that the cost of capital for this firm is 15%. Assume that as an acquiring firm, you are in a much safer business and have a cost of equity of 10%. Both the target and acquirer are public companies. What is the value of the target?
Select one:
a. $200 million
b. $100 million
c. $210 million
d. $105 million
e. $205 million
11. Suppose Coca Cola' s firm value is $200 million, and Pepsi's value is $140 million. Merging the two would allow a cost savings with a present value of $25 million. If Coca Cola purchases Pepsi for $150 million. How much do firm Coca Colas shareholder gain from this merger?
Select one:
a. $20 million
b. $10 million
c. $25 million
d. $5 million
e. $15 million
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