According to The Wall Street Journal, Merger and acquisitions activity in the first quarter rose to 5.3 billion dollars. Approximately three fourths of the seventy eight first quarter deals occurred between information technology companies. The largest information technology transaction of the quarter was EMCs $625 million acquisition of VMWARE. The VMWARE acquisition broadened EMC's core data storage device business to include software technology enabling multiple operating systems, such as Microsoft windows, Linux, and OS X, to simultaneously and independently run on the same intel based server or workstation. Suppose that at the time of the acquisition a weak economy led many of the analysts to project that VMWARE's profits would grow at a constant rate of 2 percent for the foreseeable future, and that the company's annual net income was 3960 million.

If EMC's estimated opportunity cost of funds is 9%, as an analyst how would you view the acquisition ?

Select one

1. Unfavorable - the price is more than the company is worth.
2. Favorable- the price is less than the company is worth.
3. Indifferent- the price is equal to the company's worth.

Would your conclusion change if you knew that EMC had credible information that the economy was on the verge of an expansion period that would boost. VMWARE's projected annual growth rate to four percent for the forseeable future?

Select one

1. No- the company is still worth more than the price.
2. No- the company is still worth less than the price
3. Yes- the company is now worth more than the price
4. Yes- the company is now worth less than the price