Mr. Ingram founded and has grown Mobile, a privately held company, into a flourishing 467 location drive-through and walk-up coffee stand business. Mobile has a strong presence in JHCs three largest states (by location), but no presence in the other four states JHC operates in. However, Mobile has many locations in large cities across the country, including New York, Chicago, Washington D.C. and Philadelphia. To determine the viability of an acquisition of Mobile Coffee Express by Java House Coffee Company, Mr. Ingram has provided recent financials for his company to JHC CFO Sandra Garcia. Mrs. Garcia has run cash flow forecasts for the consolidated company and estimated incremental cash inflows after taxes from the acquisition over the next 30 years (the relevant time horizon for the analysis). The pertinent financial data is included in the tables below.

Table 1: Estimated Incremental Cash Flows over 30 years for combined company

Year 1	$19,200,000
Year 2	$18,900,000
Year 3	$19,900,000
Year 4	$22,350,000
Year 5	$26,900,000
Year 6-30	$28,000,000 (per yr.)

Table 2: Mobile Coffee Express Earnings

Year	EPS	Year	EPS
2011	$1.85	2015	$2.95
2012	$2.00	2016	$3.25
2013	$2.20	2017	$3.45
2014	$2.65	2018	$3.70

Table 3: Mobile Coffee Express Balance Sheet (December 31, 2018)

Assets:		Liabilities & Equity:
Cash	$3,000,000	Current Liabilities	$ 3,600,000
Accts. Receivable	2,000,000	Mortgages Payable	5,900,000
Inventory	7,000,000	Common Stock	14,800,000
Land	7,250,000	Retained Earnings	9,700,000
Fixed Assets (net)	14,750,000	Total Liabilities & Equity	$ 34,000,000
Total Assets	$34,000,000

Table 4: JHC and Mobile additional data (December 31, 2018)

Item	JHC	Mobile
Earnings available for common stock	$29,000,000	$8,800,000
Number of shares of Common stock	7,000,000	3,400,000
Market price per share (*Estimated by JHC)	$ 43.30	$ 20*

Complete the questions below in one original Excel file. Show all calculations and formulas for solutions to questions 1 and 3. For other questions that require text-based responses, create a text box in Excel for each.

1) Based on the estimated future incremental cash flows, what is the highest price (total

amount, not per share) JHC should offer Mobile for a cash acquisition? Assume a cost of

capital of 13%.

2) If JHC planned to finance the acquisition cost from question #1 mostly with bonds, how

might the issuance of each type of bond below affect the firm? Include in your answer the

characteristics and pros and cons of each bond type.

A. Straight bonds

B. Convertible bonds

C. Bonds with stock warrants attached

3) A. What is the ratio of exchange in a stock swap acquisition if JHC pays $20 per share for

Mobile? Explain.

B. What effect will this stock swap have on the EPS of the original shareholders of each

company? Explain.

4) What alternative merger proposals could JHC make to Mobile shareholders?

5) If Mobile were a foreign-based company, what impact would this have on the analysis?

Describe added costs, regulations, benefits, international cash flow factors and risks

(economical, political, currency).

6) A. The case specifically mentions diversifying revenue streams as a merger/acquisition

motive. Detail two other merger benefits (motives) that could potentially be applicable in

this case.

B. Detail two impediments that, if existed, could potentially threaten the short- or long-term

success of the acquisition.

7) Based solely on the financial analysis, should JHC move forward with the acquisition? Why?