Question
In: Accounting
As financial manager of Corton Inc., you are investigating a possible acquisition of Denham. You have...
As financial manager of Corton Inc., you are investigating a possible acquisition of Denham. You have the basic data given in the following table.
| Corton | Denham | |||||||
| Forecast earnings per share | $ | 6.80 | $ | 1.80 | ||||
| Forecast dividend per share | $ | 4.08 | $ | .96 | ||||
| Number of shares | 1,900,000 | 1,500,000 | ||||||
| Stock price | $ | 90 | $ | 20 | ||||
You estimate that investors expect a steady growth of about 6% in Denham’s earnings and dividends. Under new management, this growth rate would be increased to 8.80% per year without the need for additional capital.
- What is the gain from the acquisition?
- What is the cost of the acquisition if Corton pays $25 in cash for each share of Denham?
- What is the cost of the acquisition if Corton offers one share of Corton for every three shares of Denham?
- How would the cost of the cash offer change if the expected growth rate of Corton was not changed by the merger?
- How would the cost of the share offer change if the expected growth rate was not changed by the merger?
Solutions
ekkarill92 answered 3 years agoRelated Solutions
As financial manager of Corton Inc., you are investigating a possible acquisition of Denham. You have...
As financial manager of Corton Inc., you are investigating a
possible acquisition of Denham. You have the basic data given in
the following table.
Corton
Denham
Forecast earnings per share
$
7.80
$
1.30
Forecast dividend per share
$
4.68
$
.69
Number of shares
2,400,000
2,000,000
Stock price
$
90
$
20
You estimate that investors expect a steady growth of about 6%
in Denham’s earnings and dividends. Under new management, this
growth rate would be increased to 7.47%...
As the financial manager of Corton Inc., you are investigating a possible acquisition of Denham. You...
As the financial manager of Corton Inc., you are investigating a
possible acquisition of Denham. You have the basic data given in
the following table.
Corton
Denham
Forecast earnings per share
$
6.20
$
1.70
Forecast dividend per share
$
3.72
$
.91
Number of shares
1,600,000
1,200,000
Stock price
$
90
$
20
You estimate that investors expect a steady growth of about 6%
in Denham’s earnings and dividends. Under new management, this
growth rate would be increased to...
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Number
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3,000,000
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Current
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The combined firm will result in a
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Amy and Brian were investigating the acquisition of a tax accounting business, Bottom line Inc. (BLI)....
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discussions with the sole shareholder of the corporation, Ernesto
Young, they examined the company's tax accounting balance sheet.
the relevant information is summarized as follows:
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The...
Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Inc. (BLI)....
Amy and Brian were investigating the acquisition of a tax
accounting business, Bottom Line Inc. (BLI). As part of their
discussions with the sole shareholder of the corporation, Ernesto
Young, they examined the company's tax accounting balance sheet.
The relevant information is summarized as follows:
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