Question
Chatham Foods, which has 1 million shares outstanding, wishes to merge with Kent Drinks with 2.5 million shares outstanding. The market prices for Chatham Foods
Chatham Foods, which has 1 million shares outstanding, wishes to merge with Kent Drinks with 2.5 million shares outstanding. The market prices for Chatham Foods and Kent Drinks are $49 and $18 per share, respectively. The merger could create an estimated savings of $800,000 annually for the indefinite future. If Chatham Foods were willing to pay $25 per share for Kent Drinks, and the appropriate cost of capital is 14%, what would be the:
a) Present value of the merger gain? (1 Point)
b) Cost of the cash offer? (1 Point)
c) NPV of the offer? (2 Points)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started