Problem 2: Value of Control: Intrinsic Valuation Acquirer Corporation would like to purchase the equity of Target Corporation. Target Corporation has the following financial information and forecasts: Current ManagementAfter AcquisitionNumber of shares outstanding 24,000 24,000 Dividends last year 25.00 -Dividends, year‐end 26.40Growth rate 0.04 0.04Required rate of return 0.16 0.15Required: 1. Total value of the shares under current management 2. Total value of the shares if acquired 3. Value of control 4. Maximum purchase price for the total equity of Target Corporation

The value of shares can be found out from the constant growth of dividends by assuming that growth…

Answered: lem 2: Value of Control: Intrinsic…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter10: Stockholder's Equity

Section: Chapter Questions

Problem 92.2C

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Problem 2: Value of Control: Intrinsic Valuation
Acquirer Corporation would like to purchase the equity of Target Corporation. Target Corporation has the following financial information and forecasts:

	Current Management	After Acquisition
Number of shares outstanding	24,000	24,000
Dividends last year	25.00	-
Dividends, year‐end		26.40
Growth rate	0.04	0.04
Required rate of return	0.16	0.15

Required:
1. Total value of the shares under current management
2. Total value of the shares if acquired
3. Value of control
4. Maximum purchase price for the total equity of Target Corporation

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