Questions 1 5:

Powerball Inc. is considering acquiring Superbowl Corp. Superbowls expected net cash flows for the first 3 years of the post-merger period are $700,000 in year 1, $800,000 in year 2, and $870,000 in year 3. After 3 years, the net cash flows are expected to grow at a constant rate of 4% per year. The appropriate discount rate for these cash flows is 10%. Superbowl has $2.5 million in debt and 500,000 shares outstanding each priced at $18 in the market.

What is Superbowls terminal value?

$10,010,000

$12,600,000

$13,640,000

$15,080,000

What is Superbowls value of equity to Powerball?

$13,467,259

$15,478,258

$13,280,992

$15,492,479

What is the value of Superbowls stock price to Powerball?

$19.54

$21.56

$23.47

$26.02

Which one of the following offer prices is a reasonable offer price that both parties could agree upon?

$23

20

18

17

Determine the merge premium if the offer price is $19.85.

10.27%

8.56%

7.24%

5.56%