BQ, Inc., is considering making an offer to purchase Report Publications. The vice president of finance has collected the following information:

	BQ			Report
Priceearnings ratio		13.4			9.4
Shares outstanding		1,200,000			190,000
Earnings	$	3,200,000		$	610,000
Dividends	$	820,000		$	270,000

BQ also knows that securities analysts expect the earnings and dividends of Report to grow at a constant rate of 6 percent each year. BQ management believes that the acquisition of Report will provide the firm with some economies of scale that will increase this growth rate to 8 percent per year.

a.	What is the value of Report to BQ? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Value of Report

$

b.	What would BQs gain be from this acquisition? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Gain

$

c.	If BQ were to offer $35 in cash for each share of Report, what would the NPV of the acquisition be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NPV

$

d.	Whats the most BQ should be willing to pay in cash per share for the stock of Report? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Maximum share price

$

e.	If BQ were to offer 230,000 of its shares in exchange for the outstanding stock of Report, what would the NPV be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NPV

$

BQs outside financial consultants think that the 8 percent growth rate is too optimistic and a 7 percent rate is more realistic.

f-1	What is the value of Report to BQ? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Value of Report

$

f-2	What would BQs gain be from this acquisition? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Gain

$

f-3	If BQ were to offer $35 in cash for each share of Report, what would the NPV of the acquisition be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NPV

$

f-4	Whats the most BQ should be willing to pay in cash per share for the stock of Report? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Maximum share price

$

f-5	If BQ were to offer 230,000 of its shares in exchange for the outstanding stock of Report, what would the NPV be? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NPV

$

f-6

Should the acquisition be attempted? If so, should it be as in (c) or as in (e)?

	The company should offer shares.
	The company should offer cash.