Fly-by-night couriers is analyzing the possible acquisition


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 $637,104 indefinitely. The current market value of Flash-in-the-Pan is $9 million. The current market value of Fly-by-Night is $30 million. The appropriate discount rate for the incremental cash flows is 7.2 percent. Fly-by-Night is trying to decided whether it should offer 35 percent of its stock or $18.5 million in cash to Flash-in-the-Pan. What is the synergy from the merger?

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Financial Management: Fly-by-night couriers is analyzing the possible acquisition
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