CASE 3 (25 points) Poppy Corporation is analysing the possible acquisition of Tulip Company. There are two alternatives for Poppy: to use cash or stock as payment. Both firms have no debt. Poppy believes the acquisition will increase its total after-tax annual cash flow by 1.3 million indefinitely. The current market value of Tulip is (27 million, and that of Poppy is 62 million. The appropriate discount rate for the incremental cash flows is 11 percent. Poppy is trying to decide whether it should offer 35 percent of its stock or (37 million in cash to Tulip's shareholders. 1 Instructions: What is the cost of each alternative? (Spoints) What is the NPV of each alternative? (5 points) a. b. Which alternative should Poppy choose? (5 points) d. What are some important factors in deciding whether to use stock or cash in an acquisition? (5 points) Explain what defensive tactics the managers of Tulip Company could use to resist acquisition (5 points) CASE 4 (25 points) Nikolas Corporation is suffering from financial distress as it can be seen from its balance sheet: YEAR O YEA YEAR 500.00 SO $100 000 MODO SO 22000 SOLO 1950.000 To 00D 100.00 $100.000 300 fairy Coro 200.000 200.000 200.000 -100 100.000 200 000 0.000 200.000 Two scenarios are possible for Nikolas in Year 3: In scenario 1 Year 3 for Nikolas is expected to result in an additional $100,000 operating loss. In scenario 2. Year 3 is expected to be a breakout" year for Nikolas when higher sales and lower costs owing to economies of scale are forecasted to produce operating profits of $300,000 in Year 3. Total assets are expected to remain at $200,000 under either scenario. Total debt will be increased to finance additional operating losses Operating profits will be used to reduce total debt. Instructions: 3. Show Nikolas's balance sheets under both scenarios (10 points) b. Based on your analysis, will Nikolas Corporation still be balance sheet insolvent in Year 3 under scenario 17 if this trend continues, would you describe Northland's financial distress as a temporary or a permanent problem? (5 points) . Based on your analysis, will Nicolas Corporation still be balance sheet insolvent in Year 3 under scenario 2? if this trend continues, would you describe Northland's financial distress as a temporary or a permanent problem? (5 points) d. There are two basic options in the situation of financial distress liquidation or reorganization Explain them. (5 points