a. What is the synergy from the merger? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the value of Flash-in-the-Pan to Fly-By-Night? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) c. What is the cost to Fly-By-Night of each alternative? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) d. What is the NPV to Fly-By-Night of each alternative? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) e. What alternative should Fly-By-Night use?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter23: Corporate Restructuring
Section: Chapter Questions
Problem 10P
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Fly-By-Night Couriers is analyzing the possible acquisition of Flash-in-the-Pan
Restaurants. Neither firm has debt. The forecasts of Fly-By-Night show that the purchase
would increase its annual aftertax cash flow by $390,000 indefinitely. The current market
value of Flash-in-the-Pan is $11 million. The current market value of Fly-By-Night is $27
million. The appropriate discount rate for the incremental cash flows is 8 percent. Fly-By-
Night is trying to decide whether it would offer 35 percent of its stock or $14 million in
cash to Flash-in-the-Pan.
a. What is the synergy from the merger? (Do not round intermediate calculations and
enter your answer in dollars, not millions of dollars, rounded to the nearest whole
number, e.g., 1,234,567.)
b. What is the value of Flash-in-the-Pan to Fly-By-Night? (Do not round intermediate
calculations and enter your answer in dollars, not millions of dollars, rounded to
the nearest whole number, e.g., 1,234,567.)
c. What is the cost to Fly-By-Night of each alternative? (Do not round intermediate
calculations and enter your answers in dollars, not millions of dollars, rounded to
the nearest whole number, e.g., 1,234,567.)
d. What is the NPV to Fly-By-Night of each alternative? (Do not round intermediate
calculations and enter your answers in dollars, not millions of dollars, rounded to
the nearest whole number, e.g., 1,234,567.)
e. What alternative should Fly-By-Night use?
Transcribed Image Text:Fly-By-Night Couriers is analyzing the possible acquisition of Flash-in-the-Pan Restaurants. Neither firm has debt. The forecasts of Fly-By-Night show that the purchase would increase its annual aftertax cash flow by $390,000 indefinitely. The current market value of Flash-in-the-Pan is $11 million. The current market value of Fly-By-Night is $27 million. The appropriate discount rate for the incremental cash flows is 8 percent. Fly-By- Night is trying to decide whether it would offer 35 percent of its stock or $14 million in cash to Flash-in-the-Pan. a. What is the synergy from the merger? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the value of Flash-in-the-Pan to Fly-By-Night? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) c. What is the cost to Fly-By-Night of each alternative? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) d. What is the NPV to Fly-By-Night of each alternative? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) e. What alternative should Fly-By-Night use?
a. Synergy value
b. Value
c. Cash cost
c. Stock cost
d. Cash NPV
d. Stock NPV
e. What alternative should Fly-By-Night use?
Transcribed Image Text:a. Synergy value b. Value c. Cash cost c. Stock cost d. Cash NPV d. Stock NPV e. What alternative should Fly-By-Night use?
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