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 2 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%...
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Current
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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
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