QUESTION 2: Brimley Technologies (BT) is considering the acquisition of McCowan Industries (MI). BT has estimated the following incremental benefits and investments: Incremental Incremental Cash Flow Incremental Incremental Net Working Year Before Taxes CCA Investment Capital 0 $0 $0 $100,000 $30,000 1 300,000 40,000 110,000 50,000 2 400,000 100,000 90,000 30,000 3 200,000 90,000 30,000 4 120,000 70,000 5 to 10 decline by 5% per year after year 4 At the end of 11 years MI will have a terminal value of $200,000. Additional Information BT P/E ratio 16 EPS $3 Shares outstanding 200,000 The marginal tax rate is 40%, and the discount rate is 15%. MI 10 $4 40,000 a. What is the NPV if BT acquires MI by using cash and paying a premium of 5%? b. What is the NPV if BT employs stock to acquire MI? BT will issue 0.9 new share in exchange for 1 share of MI? c. How many shares should be issued to MI's shareholders if BT would like to maintain cost of acquisition through stock same as the cost when cash is used. What will be the share price after the acquisition? QUESTION 2: Brimley Technologies (BT) is considering the acquisition of McCowan Industries (MI). BT has estimated the following incremental benefits and investments: Incremental Incremental Cash Flow Incremental Incremental Net Working Year Before Taxes CCA Investment Capital 0 $0 $0 $100,000 $30,000 1 300,000 40,000 110,000 50,000 2 400,000 100,000 90,000 30,000 3 200,000 90,000 30,000 4 120,000 70,000 5 to 10 decline by 5% per year after year 4 At the end of 11 years MI will have a terminal value of $200,000. Additional Information BT P/E ratio 16 EPS $3 Shares outstanding 200,000 The marginal tax rate is 40%, and the discount rate is 15%. MI 10 $4 40,000 a. What is the NPV if BT acquires MI by using cash and paying a premium of 5%? b. What is the NPV if BT employs stock to acquire MI? BT will issue 0.9 new share in exchange for 1 share of MI? c. How many shares should be issued to MI's shareholders if BT would like to maintain cost of acquisition through stock same as the cost when cash is used. What will be the share price after the acquisition