In: Finance
BQ, Inc., is considering making an offer to purchase iReport Publications. The vice president of finance has collected the following information:
BQ | iReport | |||||
Price–earnings ratio | 13.5 | 9.5 | ||||
Shares outstanding | 1,300,000 | 195,000 | ||||
Earnings | $ | 3,300,000 | $ | 615,000 | ||
Dividends | $ | 830,000 | $ | 280,000 |
BQ’s outside financial consultants think that the 7 percent growth rate is too optimistic and a 6 percent rate is more realistic. |
f-1 |
What is the value of iReport to BQ now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Value of iReport | $ |
f-2 |
What would BQ’s gain be from this acquisition? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Gain | $ |
f-3 |
If BQ were to offer $35 in cash for each share of iReport, what would the NPV of the acquisition be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
NPV | $ |
f-4 |
What’s the most BQ should be willing to pay in cash per share for the stock of iReport? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Maximum share price | $ |
f-5 |
If BQ were to offer 240,000 of its shares in exchange for the outstanding stock of iReport, what would the NPV be? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
NPV | $ |
Value with synergic gain | Value without synergic gain | ||
PE ratio | 9.5 | 9.5 | |
Cost of equity | 1/9.5 | 1/9.5 | |
Cost of equity | 10.53% | 10.53% | |
Growth rate | 6% | 5% | |
Dividend | 280000 | 280000 | |
Value= | Dividends*(1+G)/(Ke-G) | Dividends*(1+G)/(Ke-G) | |
Value= | 280000*(1+6%)/(10.53%-6%) | 280000*(1+5%)/(10.53%-5%) | |
Value= | 6,557,209.30 | 5,320,000.00 | |
BQ's gain | 1,237,209.30 | (Synergic Gain) | |
Offer made per share | 35.00 | ||
Total share | 195,000.00 | ||
Total offer | 6,825,000.00 | ||
value received | 6,557,209.30 | ||
NPV | (267,790.70) | ||
Most BQ can offer whatever they are getting | |||
Value | 6,557,209.30 | ||
Total share | 195,000.00 | ||
per share value | 33.63 | ||
BQ's own dynamics | |||
PE ratio | 13.5 | ||
Earnings | 3,300,000.00 | ||
Shares outstanding | 1,300,000.00 | ||
EPS | 2.54 | ||
Price | 34.27 | ||
Shares offered | 240,000.00 | ||
Total value offered | 8224615.385 | ||
Value received | 6,557,209.30 | ||
NPV | (1,667,406.08) | ||