1. Fly-by-night couriers is analyzing the possible acquisition of flash-in-the-pan restaurants. Neither has any debt. The forecasts by Fly-by-Night show that the purchase would increase total annual after tax cash flows by $600,000 indefinitely. The current market value of Flash-in-the-pan is $10 Million. The current market value of Fly-by-night is $35 Million. The appropriate discount rate for any change in cash flows form the merger is 8 percent.
In pricing IPOs we argued that transaction costs are important issues when deciding to go public. What are these "Transaction costs"?
A) Overpricing
B) Underpricing
C) Paying attorneys, filing fees, etc.
D) None of the above
2. Fly-by-night couriers is analyzing the possible acquisition of flash-in-the-pan restaurants. Neither has any debt. The forecasts by Fly-by-Night show that the purchase would increase total annual after tax cash flows by $600,000 indefinitely. The current market value of Flash-in-the-pan is $10 Million. The current market value of Fly-by-night is $35 Million. The appropriate discount rate for any change in cash flows form the merger is 8 percent.
You are deciding whether or not to buy the stock of a firm that is about ot issue that they are buying somone OR the stock that is about to be acquired. Based on our discussion on mergers, which one is likely to lead to a higher return for you?
A) The company that is about to purchasee someone
B) The company that is about to be purchased.
C) They are expected to be the same.
D) none of the above