TechGlobe Inc. is a leading technology company specializing in software development. Lisa, the CEO of TechGlobe, has identified a potential acquisition opportunity in the market. The target firm, Innovate Solutions, is a fast-growing startup that has developed a revolutionary artificial intelligence(AI)platform. The platform has gained significant traction in the market and is expected to revolutionize various industries. Financial analysts predict that Innovate Solutions' dividend will grow at 35%, 30% and 25% per annum for the next three years. Thereafter, the dividend growth is expected to stabilizeat10%perannumduetoincreasing competition and market saturation. The current dividend is $5.Lisa is seeking advice on the potential acquisition of Innovate Solutions.

Discuss the nature of this acquisition. What is (are) the possible benefit(s) of this acquisition to TechGlobe Inc? (5 marks)

How can Lisa assess the potential synergies that can be realized through the acquisition of Innovate Solutions? (6 marks)

What is the maximum price that Lisa would be willing to pay for Innovate Solutions' stock if she requires a 20% per annum rate of return? (5 marks)

Instead of purchasing the target firm's shares in the market, Lisa is also considering acquiring selected assets of Innovate Solutions only. Discuss the advantages and disadvantages of acquisition of stock and acquisition of assets. (6 marks)

After reviewing Innovate Solutions' balance sheet, Lisa discovered that the target firm has a significant amount of long-term debt in its capital structure. She is concerned thatthis debt burden may negatively impact TechGlobe after the acquisition. As Lisa's financial advisor, do you recommend the potential acquisition? (6 marks)

Recently, the CEO of Innovate Solutions announced that the company is not interested in any merger or acquisition offers. Therefore, if TechGlobe initiates the acquisition, it would be considered an unfriendly takeover. Discuss the possible actions taken by Innovate Solutions if TechGlobe proceeds with the acquisition. (6 marks)

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The current market price of Innovate Solutions' stock is $80. Lisa is concerned that if news of the potential acquisition is leaked, the stock price of Innovate Solutions may surge, resulting higher acquisition costs. She wants to hedge against this risk using call options or futures contracts. The information of the derivatives market is as follows:

Call option:

• Strike price: $80
• Expiration date: 1 month later
• Type: European
• Option price: $5 Futures:
• Futures price: $83
• Expiration date: 1 month later

Please advise appropriate derivatives strategies for Lisa. Illustrate your answer with tables or diagrams. (6 marks)

Evaluate the effectiveness of call options and futures contracts as hedging instruments to mitigate the risk of an increase in Innovate Solutions' stock price. Provide a detailed analysis of how these derivatives strategies can address Lisa's concerns about potential acquisition cost fluctuations. (10 marks)

Discuss the potential risks and challenges associated with the acquisition of Innovate Solutions, and how can they be mitigated? (10 marks)