Question
Tom Corporation is considering the acquisition of Jerry Corporation. Jerry Corporation has free cash flows to debt and equity holders of $3,750,000. If Tom Corporations
Tom Corporation is considering the acquisition of Jerry Corporation. Jerry Corporation has free cash flows to debt and equity holders of $3,750,000. If Tom Corporations acquires Jerry Corporation, Jerry will reduce operating costs by $1,500,000. This will increase free cash flow to $4,900,000. Assume that cash flows occur at year-end and the weighted average cost of capital is 9%.
a. What is the value of Jerry Corporation without a merger?
b. What is the value of Jerry Corporation with the merger?
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The Business Of Personal Finance
Authors: Joseph Calandro Jr, John Hoffmire
1st Edition
1032104562, 978-1032104560
