(Answered) Question the alpha company plans to take over the omega

Finance

Question: The Alpha Company plans to take over the Omega Company. Relevant data before the merger are as follows:

Synergetic effects in a combination of Alpha and Omega are expected to produce after-tax cash flows of $ 1,000 annually.

(a) If Alpha offered a one-for-one share exchange with Omega (based on their identical market prices) and the share value of the combined firm remained unchanged at $35, what would be the new price/earnings ratio and earnings per share for Alpha immediately after the acquisition?

(b) The management of Alpha, noting that its earnings per share would rise with the offer in (a) decides to entice shareholders of Omega with a more attractive offer. Specifically, for each 2 shares of Omega, the shareholder could receive 1 share of Alpha and a $50, 3-year note paying 1 6-percent interest annually. What would be Alpha's earnings per share immediately after the takeover?

(c) If this were a horizontal merger, discuss the likely impact of the fusion under alternative (b) above on the acquiring firm's cost of common equity.

View complete question

Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92559595
Price:- $15

Verified Expert

Priced at $30 Now at $15, Verified Solution

Have any Question?Write your Review or question?

Related Questions in Basic Finance

Kings department store is contemplating the purchase of a

King's Department Store is contemplating the purchase of a new machine at a cost of $36,686. The machine will provide $4,900 per year in cash flow for fourteen years. King's has a cost of capital of 12 percent. calculate ...

A project has an initial outlay of 4623 it has a single

A project has an initial outlay of $4,623. It has a single payoff at the end of year 3 of $8,869. What is the net present value (NPV) of the project if the company's cost of capital is 12.43 percent?

From 1991 to 2000 the us economy had an annual inflation

From 1991 to? 2000, the U.S. economy had an annual inflation rate of around 3.50?%. The historical annual nominal? risk-free rate for this same period was around 5.73?%. Using the approximate nominal interest rate equati ...

What is the difference between systematic versus

What is the difference between systematic versus unsystematic risk?

A brewer is launching a new product brewed ginger ale with

A brewer is launching a new product: brewed ginger ale with a low alcohol content. The brewer plans to spend $3 million promoting this product this year, which is expected to expand its sales of this product to $12 milli ...

A firm recently paid a 044 annual dividend the dividend is

A firm recently paid a $0.44 annual dividend. The dividend is expected to increase by 10 percent in each of the next four years. In the fourth year, the stock price is expected to be $20. If the required return for this ...

Questions -q1 firm a is issuing a zero-coupon bond that

Questions - Q1: Firm A is issuing a zero-coupon bond that will have a maturity of 50 years. The bond's par value is $1,000, and the current interest rate is 7.5%. What is the price of this bond? Q2: What is the price of ...

A factory manager must decide whether to stock a particular

A factory manager must decide whether to stock a particular spare part. The part is absolutely essential to the operation of certain machines in the plant. Stocking the part costs $10 per day in storage and cost of capit ...

A company is considering a new project that will require

A Company is considering a new project that will require $840,000 of new equipment at the start of the project. The equipment will have a depreciable life of 7 years and will be depreciated to a book value of $56,000 usi ...

Determine the internal rate of return for a project that

Determine the internal rate of return for a project that costs $177,000 and would yield after-tax cash flows of $21,000 per year for the first 5 years, $29,000 per year for the next 5 years, and $42,000 per year for the ...

4,153,160 Questions Asked
13,132 Experts
2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Recent Questions

Ask Basic Finance Expert