In: Finance
Fly-by-Night Couriers is analyzing the possible acquisition of
Flash-in-the-Pan Restaurants. Neither firm has any debt. The...
- Fly-by-Night Couriers is analyzing the possible acquisition of
Flash-in-the-Pan Restaurants. Neither firm has any debt. The
forecasts by Fly-by-Night show that the purchase would increase
total annual after-tax cash flows by $600,000 indefinitely. The
current market value of Flash-in-the-Pan is $10 million. The
current market value of Fly-by-Night is $35 million. The
appropriate discount rate for any change in cash flows from the
merger is 8 percent.
- What is the total synergy gain from this merger? A.
$7,500,000
- What is the most that Fly-by-Night would be willing to pay for
Flash-in-the-Pan (the value of a target firm to the acquiring
firm)? $17,500,000
Fly-by-Night is trying to decide
whether it should offer 25 percent of its stock or $15 million in
cash for Flash-in-the-Pan.
- What is the NPV to Flash-in-the-Pan of each alternative? A.
Cash Aquisition = $5,000,000, Stock Aquisition = $3,125,000
- What is the NPV to Fly-by-Night of each alternative? A. Cash
Aquisition = $2,500,000, Stock Aquisition = $4,375,000
- Which of these alternative will Fly-by-Night prefer? A. Stock
Aquisition
These are the answers but I just need to know how to get them,
like step by step solution. Thank you!