AMC MOVIES is considering making an offer to purchase emagine theaters. Some financial information on the two companies is given in the following table.

Before Merger After Merger After Merger

(Cash) (Stock)

AMC. emagine amc amc

Revenues $150 $20 $172 $172

Operating Costs $118 $16 $131 $131

Earnings $32 $4 $41 $41

Cash $55 $2.5

Other Assets $185 $17

Total Assets $240 $19.5

Price per share $46 $16

# of shares (million) 10 2.5

Market Value (million) $460 $40

The forecasts of AMC show that total earnings after merger would increase by $5 million every year.

Assume that the earnings increase is GA of AMC to Emagine?

(2) What is the total market value of AMC after the merger? (2 marks)

(3) What is the NPV of the acquisition?

(4) If instead AMC were to offer 1,000,000 of its shares in exchange for the outstanding stock of emagine, what would the net present value of the merger be? (2 marks)