question archive An acquiring firm is analyzing the possible acquisition of a target firm
An acquiring firm is analyzing the possible acquisition of a target firm
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An acquiring firm is analyzing the possible acquisition of a target firm. Both firms have no debt. The acquiring firm believes the acquisition of the target firm will increase its total after-tax annual cash flow by $3.4 million per year forever. The appropriate discount rate for the incremental cash flows is 9 percent. The current market value of the target firm is $85 million, and the current market value of the acquiring firm $150 million. If the acquiring firm pays 35 percent of its stock to the target firms shareholder. What is the net present value of the acquisition?
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