1.a. SAAT Industries is considering making an offer to purchase Kovan Corp. SAATs chief financial officer has collected the following information:

	SAAT	Kovan
Price to earnings ratio	18	8.5
Shares outstanding	1.3 million	850,000
Earnings	$4.5 million	$925,000
Dividends	$1.4 million	$450,000

SAAT also knows that analysts expect the earnings and dividends of Kovan to grow at a constant rate of 6% per year. SAAT management, however, believes that the acquisition of Kovan will provide the firm with some economies of scale that will increase this growth rate to 8% per year.

If SAAT were to offer $10 in cash for each share of Kovan, the NPV of the acquisition would be closest to:

Question 12 options:

	$2,678,571
	$3,450,508
	$4,128,202
	$8,918,519
	None of the above

1.b.

Which of the following statements is FALSE?

	Valuation via the multiples method is a relative valuation technique.
	Evidence suggests that the premium an acquirer pays is approximately equal to the value it adds, which means target shareholders ultimately capture the value added by the acquirer.
	A toehold purchase is the purchase of shares in a target by a bidder after initiating the M&A discussions.
	A poison pill is a defense against a hostile takeover.
	None of the above