Question
To determine the viability of an acquisition of Mobile Coffee Express by Java House Coffee Company, Mr. Ingram has provided recent financials for his company
To determine the viability of an acquisition of Mobile Coffee Express by Java House Coffee Company, Mr. Ingram has provided recent financials for his company to JHC CFO Sandra Garcia. Mrs. Garcia has run cash flow forecasts for the consolidated company and estimated incremental cash inflows after taxes from the acquisition over the next 30 years (the relevant time horizon for the analysis). The pertinent financial data is included in the tables below.
Table 1: Estimated Incremental Cash Flows over 30 years for combined company
Year 1 | $19,200,000 |
Year 2 | $18,900,000 |
Year 3 | $19,900,000 |
Year 4 | $22,350,000 |
Year 5 | $26,900,000 |
Year 6-30 | $28,000,000 (per yr.) |
Table 2: Mobile Coffee Express Earnings
Year | EPS | Year | EPS |
2011 | $1.85 | 2015 | $2.95 |
2012 | $2.00 | 2016 | $3.25 |
2013 | $2.20 | 2017 | $3.45 |
2014 | $2.65 | 2018 | $3.70 |
Table 3: Mobile Coffee Express Balance Sheet (December 31, 2018)
Assets: | Liabilities & Equity: | ||
Cash | $3,000,000 | Current Liabilities | $ 3,600,000 |
Accts. Receivable | 2,000,000 | Mortgages Payable | 5,900,000 |
Inventory | 7,000,000 | Common Stock | 14,800,000 |
Land | 7,250,000 | Retained Earnings | 9,700,000 |
Fixed Assets (net) | 14,750,000 | Total Liabilities & Equity | $ 34,000,000 |
Total Assets | $34,000,000 |
Table 4: JHC and Mobile additional data (December 31, 2018)
Item | JHC | Mobile |
Earnings available for common stock | $29,000,000 | $8,800,000 |
Number of shares of Common stock | 7,000,000 | 3,400,000 |
Market price per share (*Estimated by JHC) | $ 43.30 | $ 20* |
Complete the questions below in one original Excel file. Show all calculations and formulas for solutions to question 1. ***If possible please put in an Excel format***
1) A. What is the ratio of exchange in a stock swap acquisition if JHC pays $20 per share for
Mobile? Explain.
B. What effect will this stock swap have on the EPS of the original shareholders of each
company? Explain.
2) What alternative merger proposals could JHC make to Mobile shareholders?
3) If Mobile were a foreign-based company, what impact would this have on the analysis?
Describe added costs, regulations, benefits, international cash flow factors and risks
(economical, political, currency).
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