Question

In: Accounting

The Floral Shoppe and Maggie's Flowers are all-equity firms. The Floral Shoppe has 1,850 shares outstanding...

The Floral Shoppe and Maggie's Flowers are all-equity firms. The Floral Shoppe has 1,850 shares outstanding at a market price of $23 a share. Maggie's Flowers has 2,850 shares outstanding at a price of $32 a share. Maggie's Flowers is acquiring The Floral Shoppe for $30,000 in cash. The incremental value of the acquisition is $3,100. What is the net present value of acquiring The Floral Shoppe to Maggie's Flowers?

$17,650

$16,650

$14,650

$15,650

$18,650

Solutions

Expert Solution

Answer:
Given data,
Value of the acquisition is $30,000
Incremental value of the acquisition is $3,100
Value of the Shares   = Shares outstanding x Market price
                                           =    1,850 Shares   x $23
                                           =    $42,550
Cost Saved on Acquisition     = $42,500 (-) $30,000
                                                          =   $12,550
Net present value of acquisition
           = Incremental value + Cost Saved on Acquisition
            =     $3,100 + $12,500
            = $15,650
Net present value of acquisition   = $15,650
Option (D) is correct - $15,650

Related Solutions

AAA and ZZZ are all-equity firms. AAA has 530 shares outstanding at a market price of...
AAA and ZZZ are all-equity firms. AAA has 530 shares outstanding at a market price of $101 a share. ZZZ has 200 shares outstanding at a price of $17 a share. ZZZ is acquiring AAA for $7,000 in cash. The incremental value of the acquisition is $8,000. What is the net present value of acquiring AAA to ZZZ? You purchase a call option on Belarus rubles for a premium of $.10 per unit, with an exercise price of $2.48. The...
An all-equity company has common and preferred shares. There are 250,000 common shares outstanding with a...
An all-equity company has common and preferred shares. There are 250,000 common shares outstanding with a price of $31.30 per share and with an expectation to continue to provide a dividend of $4.75 per share. There are 50,000 preferred shares outstanding, with a 3.10% dividend, $100 par value per share, and $61.80 market value per share. Given this information, what is the company's WACC? a) 13.53 % b) 12.91% c) 13.22 % d) 12.61 % e)12.30 %
An all-equity company A has 10 shares outstanding. Its equity Beta is 1.25 and its perpetual...
An all-equity company A has 10 shares outstanding. Its equity Beta is 1.25 and its perpetual annual operating cashflow is expected to be $92. This company is considering acquisition of company B which has 5 shares outstanding, an equity Beta of 2/3 and its perpetual annual operating cashflow is expected to be $16. The expected market return is 10% and the risk-free interest rate is 4%. What would the price per share of company A shares if it acquires Company...
Taunton's is an all-equity firm that has 152,500 shares of stock outstanding. The CFO is considering...
Taunton's is an all-equity firm that has 152,500 shares of stock outstanding. The CFO is considering borrowing $251,000 at 7 percent interest to repurchase 21,500 shares. Ignoring taxes, what is the value of the firm? $1,865,127 $2,191,199 $1,780,349 $2,034,684 $2,300,758
Simone's Sweets is an all-equity firm that has 12,100 shares of stock outstanding at a market...
Simone's Sweets is an all-equity firm that has 12,100 shares of stock outstanding at a market price of $19 per share. The firm's management has decided to issue $128,000 worth of debt at an interest rate of 8 percent. The funds will be used to repurchase shares of the outstanding stock. What are the earnings per share at the break-even EBIT? Multiple Choice $4.13 $3.72 $1.52 $2.73 $3.43
Roger Inc. is currently an all equity firm that has 500,000 shares of stock outstanding at...
Roger Inc. is currently an all equity firm that has 500,000 shares of stock outstanding at a market price of $20 a share. EBIT is $1,500,000 and is constant forever. The required annual rate of return on the share is 12%. The corporate tax is 35%. The firm is proposing borrowing an additional $2 million in debt and uses the proceeds to repurchase stock. If it does so, the cost of debt will be 10%. What will be the WACC...
Roger Inc. is currently an all equity firm that has 500,000 shares of stock outstanding at...
Roger Inc. is currently an all equity firm that has 500,000 shares of stock outstanding at a market price of $20 a share. EBIT is $1,500,000 and is constant forever. The required annual rate of return on the share is 12%. The corporate tax is 35%. The firm is proposing borrowing an additional $2 million in debt and uses the proceeds to repurchase stock. If it does so, the cost of debt will be 10%. What will be the WACC...
Kim's Bridal Shoppe has 11,600 shares of common stock outstanding at a price of $50 per...
Kim's Bridal Shoppe has 11,600 shares of common stock outstanding at a price of $50 per share. It also has 285 shares of preferred stock outstanding at a price of $92 per share. There are 320 bonds outstanding that have a coupon rate of 6.9 percent paid semiannually. The bonds mature in 31 years, have a face value of $2,000, and sell at 109 percent of par. What is the capital structure weight of the common stock? .3989 .4864 .4654...
Kim's Bridal Shoppe has 11,000 shares of common stock outstanding at a price of $44 per...
Kim's Bridal Shoppe has 11,000 shares of common stock outstanding at a price of $44 per share. It also has 255 shares of preferred stock outstanding at a price of $86 per share. There are 600 bonds outstanding that have a coupon rate of 6.3 percent paid semiannually. The bonds mature in 25 years, have a face value of $1,000, and sell at 106 percent of par. What is the capital structure weight of the common stock? .4238 .5063 .5570...
CanStar Limited is an all equity firm, has 1,000,000 common shares outstanding and has earnings per...
CanStar Limited is an all equity firm, has 1,000,000 common shares outstanding and has earnings per share (EPS) of $3.00. Its tax rate is 25%. The company is considering making a $4 million investment which will increase EBIT by 20%. Its plan is to issue shares at their current market value of $20. a) Assuming everything else remains the same, what is the expected share price? Show your work. b) Now assume that CanStar would have to sell new stock...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT