As treasurer of Leisure Products, Inc., you are investigating the possible acquisition of Plastitoys. You have the following basic data:
|
Leisure Products |
Plastitoys |
| Forecast earnings per share |
$6 |
$1.60 |
| Forecast dividend per share |
$4 |
$.80 |
| Number of shares |
1,500,000 |
900,000 |
| Stock price |
$90 |
$20 |
You estimate that investors currently expect a steady growth of about 7% in Plastitoys's earnings and dividends. You believe that Leisure Products could increase Plastitoys's growth rate to 9% per year, without any additional capital investment required.
a. What is the gain from the acquisition? (Do not round intermediate calculations.)
Gain $
b. What is the cost of the acquisition if Leisure Products pays $25 in cash for each share of Plastitoys? (Do not round intermediate calculations.)
Cost $
c. What is the cost of the acquisition if Leisure Products offers one share of Leisure Products for every three shares of Plastitoys? (Do not round intermediate calculations.)
Cost $
d. How would the cost of the cash offer and the share offer alter if the expected growth rate of Plastitoys were not increased by the merger?
Cash $
Share $