Question
Wheatley Corp. is analyzing the possible acquisition of Romney Company. Both firms have no debt. Wheatley believes the acquisition will increase its total after-tax annual
Wheatley Corp. is analyzing the possible acquisition of Romney Company. Both firms have no debt. Wheatley believes the acquisition will increase its total after-tax annual cash flows by $2,000,000 indefinitely. The current market value of Romney is $43,000,000, and that of Wheatley is $89,000,000. The appropriate discount rate for the incremental cash flows is 10%. Wheatley is trying to decide whether it should offer 40% of its stock or $61,000,000 in cash to Romney's shareholders. Based on the given information, please answer questions a, b, and c
a) What is the cost of each alternative?
b) What is the NPV of each alternative
c) Which alternative should Wheatley choose?
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Behavioural Approaches To Corporate Governance
Authors: Cameron Elliott Gordon
1st Edition
1138611395, 978-1138611399
