Part 1 and Part II are independent. Please answer both parts. Part I: You are advising...

Part 1 and Part II are independent. Please answer both parts.

Part I: You are advising company ABC on its merger and acquisition case. The buyer company offers ABC two options.

Option #1= $100 million cash at the acquisition date.

Option #2 = $25 million cash at the acquisition date and another additional $90 million AFTER one year.

The management team of ABC perceives a 30 percent annual discount rate. Which option should ABC choose? Show your work.

Part II: What is the definition of internal rate of return (IRR) (it is efficient to write down the formula)? What are the given information and what is the unknown variable?

Solutions

Expert Solution

Rahul Sunny answered 7 months ago

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