Question
Apple Wonder, Inc. is contemplating the acquisition of McRobert Restaurants. Neither of these companies has debt. The forecasts of Apple Wonder, Inc. show that the
Apple Wonder, Inc. is contemplating the acquisition of McRobert Restaurants. Neither of these companies has debt.
The forecasts of Apple Wonder, Inc. show that the purchase would increase its annual after-tax cash flow by $380,000 indefinitely.
The current market value of McRobert Restaurants is $10 million, and the current market value of Apple Wonder, Inc. is $24 million.
The appropriate discount rate for the incremental cash flows is 10%.
Apple Wonder, Inc. is trying to decide whether it would offer 35% of its stock or $13 million in cash to McRobert.
Questions:
- What is the synergy of the merger?
- What is the value of McRobert to Apple Wonder, Inc.?
- What is the cost to Apple Wonder, Inc. of each alternative?
- What is the NPV to Apple Wonder, Inc. of each alternative?
- What alternative should Apple Wonder, Inc. use?
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Cases in Financial Reporting
Authors: Michael J. Sandretto
1st edition
538476796, 978-0538476799
