Calculating NPV Plant, Inc , is considering making an offer to purchase Palmer Corp Plants vice president of finance has collected the following information Plant Palmer Priceearnings ratio 14 5 10 Shares outstanding 1,500,000 750,000 Earnings $4,200,000 $960,000 Dividends 1,050,000 470,000 Plant also knows that securities analysts expect the earnings and dividends of Palmer to grow at a constant rate of 4 percent each year Plant management believes that the acquisition of Palmer will provide the firm with some economies of scale that will increase this growth rate to 6 percent per year What is the value of Palmer to Plant What would Plants gain be from this acquisition If Plant were to offer $20 in cash for each share of Palmer, what would the NPV of the acquisition be What is the most Plant should be willing to pay in cash per share for the stock of Palmer If Plant were to offer 225,000 of its shares in exchange for the outstanding stock of Palmer, what would the NPV be Should the acquisition be attempted If so, should it be as in (c) or as in (e) Plants outside financial consultants think that the 6 percent growth rate is too optimistic and a 5 percent rate is more realistic How does this change your previous answers

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Oct 05, 2024

Calculating NPV Plant, Inc., is considering making an offer to purchase Palmer Corp. Plants vice president of finance has collected the following information: Plant Palmer

Calculating NPVPlant, Inc., is considering making an offer to purchase Palmer Corp. Plants vice president of finance has collected the following information:

	Plant	Palmer
Priceearnings ratio	14.5	10
Shares outstanding	1,500,000	750,000
Earnings	$4,200,000	$960,000
Dividends	1,050,000	470,000

Plant also knows that securities analysts expect the earnings and dividends of Palmer to grow at a constant rate of 4 percent each year. Plant management believes that the acquisition of Palmer will provide the firm with some economies of scale that will increase this growth rate to 6 percent per year.

What is the value of Palmer to Plant?
What would Plants gain be from this acquisition?
If Plant were to offer $20 in cash for each share of Palmer, what would the NPV of the acquisition be?
What is the most Plant should be willing to pay in cash per share for the stock of Palmer?
If Plant were to offer 225,000 of its shares in exchange for the outstanding stock of Palmer, what would the NPV be?
Should the acquisition be attempted? If so, should it be as in (c) or as in (e)?
Plants outside financial consultants think that the 6 percent growth rate is too optimistic and a 5 percent rate is more realistic. How does this change your previous answers?