Gekko Properties is considering purchasing Teldar Properties. Gekko's analysts project that the merger will result in incremental after-tax cash flows of $2.75 million, $4.23 million, $5.67 million, and $10.2 million over the next four years. The horizon value of the firm's operations, as of Year 4, is expected to be $107.5 million. Assume all cash flows occur at the end of the year. The acquisition would be made immediately, if it is undertaken. Teldar's post-merger beta is estimated to be 1.5, and its post-merger tax rate would be 40%. The risk-free rate is 6%, and the market risk premium is 5 %.

What is the value of Teldar to Gekko Properties?

What is the appropriate discount rate? (show your work)

Assume Teldar has 5 million shares outstanding. What is the value per share?

If Teldar was trading at $12 per share, what should Gekkos offering price be? Why?

At what price do all benefits go to Teldar?

At what price do all benefits go to Gekko?