Question 1 
Consider the following information for two all-equity firms, Slippery and Slope: 

Slippery Slope
Shares outstanding 3000 9000
Price per share 6 4.5
Total market value 18000 40500


Slippery estimates that the value of the synergistic benefit from acquiring Slope is $3000. 

Slope directors advise that they would accept a cash purchase offer of $5.25 per share. Should Slippery proceed? 

Question 2 
Tiara Pty Ltd is analysing the possible acquisition of Queen Ltd. Neither firm has debt. The forecast of Tiara shows that the purchase would increase its annual total after-tax cash flow by $660 000 indefinitely. The current market value of Queen is $7.5 million, and that of Tiara is $12 million. The appropriate discount rate for the incremental cash flows is 9 per cent. 

Tiara is trying to decide whether it should offer 40 per cent of its shares or $8 million in cash to Queen. 
a) What is the cost of each alternative? 

b) What is the NPV of each alternative? 

c) Which alternative should Tiara use? 

Question 3 
Restful Industries has offered $12 million cash for all the ordinary shares in Sofa Distribution Pty Ltd. Based on recent market information, Sofa Distribution is worth $8 million as an independent operation. If the merger makes economic sense for Restful, what is the minimum estimated value of the synergistic benefits from the merger?