In: Finance
Velcro Saddles is contemplating the acquisition of Skiers’
Airbags Inc. The values of the two companies as separate entities
are $24 million and $12 million, respectively. Velcro Saddles
estimates that by combining the two companies, it will reduce
marketing and administrative costs by $520,000 per year in
perpetuity. Velcro Saddles can either pay $16 million cash for
Skiers’ or offer Skiers’ a 48% holding in Velcro Saddles. The
opportunity cost of capital is 10%.
Required:
a |
Merger gain |
million |
|
b |
Cost of cash offer |
million |
|
c |
Cost of stock offer |
million |
|
d |
NPV of cash offer |
million |
|
e |
NPV of stock offer |
million |