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Plant, Inc., is considering making an offer to purchase Palmer Corp. Plant's vice president of finance has collected the following information: Plant also knows that
Plant, Inc., is considering making an offer to purchase Palmer Corp. Plant's vice president of finance has collected the following information: Plant also knows that securities analysts expect the earnings and dividends of Palmer to grow at a constant rate of 6 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 8 percent per year. a. What is the value of Palmer to Plant? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What would Plant's gain be from this acquisition? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. If Plant were to offer $33 in cash for each share of Palmer, what would the NPV of the acquisition be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What is the most Plant should be willing to pay in cash per share for the stock of Palmer? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) e. If Plant were to offer 245,000 of its shares in exchange for the outstanding stock of Palmer, what would the NPV be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Plant's outside financial consultants think that the 8 percent growth rate is too optimistic and a 7 percent rate is more realistic. f-1. If Plant still offers $33 per share, what is the NPV with this new growth rate? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) f- If Plant still offers 245,000 shares, what is the NPV with this new growth rate? (Do not 2. round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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