Question 1 (20 marks) Walker Inc., and Chris Solutions, Inc., are negotiating a friendly acquisition of Chris by Walker. Walker estimates that the purchase would increase its annual after-tax cash flow $8,456,000. The appropriate discount rate is 9.5 percent. Neither firm has debt. Adagio present three alternative offers: 1. Cash offer: Walker will pay $14 per share of Chris stock 2. Stock offer: Walker will give Chris shareholders 0.8 shares of Walker stock per share of Chris stock 3. Mixed offer: Walker will pay $6 plus 0.4 shares of Walker stock per share of Chris stock Another information needed are listed in the following table Walker Chris Pre-merge stock price $ 15 $ 10 Shares outstanding (millions) 75 30 a. What is the synergy from the merge? (2 marks) b. What is the value of Chris to Walker? (2 marks) c. What is the merge premium to Adagio of each offer. Please keep two decimals (8 marks) d. What is the NPV to Walker from each offer? Please keep two decimals (3 marks) e. Assume we only consider cash offer and stock offer, at what exchange ratio of Walker shares to Chris shares would the shareholders in Chris be indifferent between the two offers? (5 marks) Question 1 (20 marks) Walker Inc., and Chris Solutions, Inc., are negotiating a friendly acquisition of Chris by Walker. Walker estimates that the purchase would increase its annual after-tax cash flow $8,456,000. The appropriate discount rate is 9.5 percent. Neither firm has debt. Adagio present three alternative offers: 1. Cash offer: Walker will pay $14 per share of Chris stock 2. Stock offer: Walker will give Chris shareholders 0.8 shares of Walker stock per share of Chris stock 3. Mixed offer: Walker will pay $6 plus 0.4 shares of Walker stock per share of Chris stock Another information needed are listed in the following table Walker Chris Pre-merge stock price $ 15 $ 10 Shares outstanding (millions) 75 30 a. What is the synergy from the merge? (2 marks) b. What is the value of Chris to Walker? (2 marks) c. What is the merge premium to Adagio of each offer. Please keep two decimals (8 marks) d. What is the NPV to Walker from each offer? Please keep two decimals (3 marks) e. Assume we only consider cash offer and stock offer, at what exchange ratio of Walker shares to Chris shares would the shareholders in Chris be indifferent between the two offers