Question
Question 1 2.5 marks Fantastic Three Ltd. has 20,000 shares outstanding that are currently trading at $20. Both Yamato Inc and Zoolander International have shown
Question 1 2.5 marks
Fantastic Three Ltd. has 20,000 shares outstanding that are currently trading at $20. Both Yamato Inc
and Zoolander International have shown interest in the acquisition of Fantastic Three. Yamato has a
market value of $1 million and 100,000 shares outstanding, while Zoolander has 500,000 shares trading
at $15. In order to acquire Fantastic Three, Yamato has offered to pay to Fantastic's shareholders
$600,000 cash, while Zoolander has offered to issue 40,000 new shares as a payment.
a)
What is the minimum dollar amount of annual, after-tax synergies created by the merger, for
each Yamato and Zoolander, which would justify such offers? Assume synergies are perpetual
and a discount rate is 10%. (1 mark)
b)
Assuming after-tax synergies from the merger would be $25,000 in perpetuity for both Yamato
and Zoolander, and that Fantastics shareholders are indifferent between a share or cash offer of
equal value, which offer should they accept? (1.5 marks)
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