When an acquirer assesses a potential target, the price the acquirer is willing to pay should be based on the value of The target firm's total corporate value (debt and equity) The target firm's equity The target firm's debt Consider the following scenario: Universal Drapers Inc. is considering an acquisition of Drugal Brewing Co. (DBC), and estimates that acquiring DBC will result in incremental after-tax net cash flows in years 1-3 of $20.0 million, $30.0 million, and $36.0 million, respectively. After the first three years, the incremental cash flows contributed by the DBC acquisition are expected to grow at a constant rate of 3% per year. Universal's current beta is 1.60, but its post-merger beta is expected to be 2.08. The risk-free rate is 6%, and the market risk premium is 8.10%. Based on this information, complete the following table by selecting the appropriate values: Value Post-merger cost of equity Projected value of the cash flows at the end of three years The value of Drugal Brewing Co. (DBC)'s contribution to Universal Drapers Inc. Prugal Brewing Co. (DBC) has 6 million shares of common stock outstanding. What is the largest tender offer Universal Drapers Inc. should make on each of Drugal Brewing Co. (DBC)'s shares? O $26.06 $20.84 $31.27 When an acquirer assesses a potential target, the price the acquirer is willing to pay should be based on the value of The target firm's total corporate value (debt and equity) The target firm's equity The target firm's debt Consider the following scenario: Universal Drapers Inc. is considering an acquisition of Drugal Brewing Co. (DBC), and estimates that acquiring DBC will result in incremental after-tax net cash flows in years 1-3 of $20.0 million, $30.0 million, and $36.0 million, respectively. After the first three years, the incremental cash flows contributed by the DBC acquisition are expected to grow at a constant rate of 3% per year. Universal's current beta is 1.60, but its post-merger beta is expected to be 2.08. The risk-free rate is 6%, and the market risk premium is 8.10%. Based on this information, complete the following table by selecting the appropriate values: Value Post-merger cost of equity Projected value of the cash flows at the end of three years The value of Drugal Brewing Co. (DBC)'s contribution to Universal Drapers Inc. Prugal Brewing Co. (DBC) has 6 million shares of common stock outstanding. What is the largest tender offer Universal Drapers Inc. should make on each of Drugal Brewing Co. (DBC)'s shares? O $26.06 $20.84 $31.27
