Question
Plant Inc. is considering making an offer to purchase Palmer Corp. Plants VP has collected the following information: Plant Palmer Price-earnings Ratio 14.00 11.0 Shares
Plant Inc. is considering making an offer to purchase Palmer Corp. Plants VP has collected the following information:
|
| Plant | Palmer |
| Price-earnings Ratio | 14.00 | 11.0 |
| Shares Outstanding | 1,000,000 | 620,000 |
| Earnings | $1,800,000 | $580,000 |
| Dividends (total) | $600,000 | $290,000 |
Plant also knows that analysts expect the earnings and dividends of palmer to grow at a constant rate of 5% each year. Plants management believes that the acquisition of Palmer will provide their firm with some economies of scale that will increase this growth rate further to 7% per year.
Assume that Plant has hired you as an Investment Banker to help them with the following questions.
What is the value of Palmer to Plant?
What would be Plants gain from this acquisition?
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