Benson Inc. is considering making an offer to purchase Dylex Corporation. The vice president of finance has collected the following information:

Benson Inc.

Price-earning ratio

12

Shares outstanding

1,000,000

Earnings

$2,000,000

Dylex Corporation

Price-earning ratio

7.50

Shares outstanding

300,000

Earnings

$450,000

Benson Inc. also knows that securities analysts expect the earnings and dividends (currently $0.96 per share) of Dylex Corporation to grow at a constant rate of 7 percent each year. Benson Inc. management believes that the acquisition of Dylex Corporation will provide the firm with some economies of scale that will increase this growth rate to 12 percent per year.

Note: Please make sure your final answers are accurate to 2 decimal places.

a) What is the value of Dylex Corporation to Benson Inc.?

Value of Dylex Corporation to Benson Inc. = $

b) What would Benson Inc.'s gain be from this acquisition?

Gain = $

c) If Benson Inc. were to offer $15 in cash for each share of Dylex Corporation, what would the NPV of the acquisition be?

NPV cash = $

d) What's the most Benson Inc. should be willing to pay in cash per share for the stock of Dylex Corporation?

Maximum payable price = $

e) If Benson Inc. were to offer 120,000 of its shares in exchange for the outstanding stock of Dylex Corporation, what would the NPV be?

NPV stock = $

f)	Should the acquisition be attempted, and, if so, should it be as in (c) or as in (e)? Yes, as in (c) No Yes, as in (e)