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VS is contemplating the acquisition of TG. Each company has 1 million shares outstanding You are given the following information: Value of VS alone (in
| VS is contemplating the acquisition of TG. Each company has 1 million shares outstanding | |
| You are given the following information: | |
| Value of VS alone (in million) | 100 |
| Value of TG alone (in million) | 57 |
| From merger, the estimated reduction in after-tax R&D costs per year in perpetuity (in million) | 5 |
| VS is considering a cash offer to TG (in million): | 74.1 |
| Cost of capital | 0.08 |
| Tax-rate | 0.37 |
| i. What would be the gain from the merger? | |
| ii. What is the cost of the cash offer? | |
| iii. What is the NPV of the acquisition under the cash offer? | |
| Now suppose that instead of making a cash offer, VS cosiders offering TG shareholders a 50% holding in VS. | |
| iv. What is the value of stock in the merged company held by the original TG shareholders? | |
| v. What is the cost of the stock alternative? | |
| vi. What is the NPV under the stock offer? | |
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