Raleigh couriers is analyzing the possible acquisition of


Question: Raleigh Couriers is analyzing the possible acquisition of Harwich Restaurants. Neither company has debt. The purchase would increase Releigh's after-tax cash flow by $425,000 every year. The current market value of Harwich is $8.8 million, and the current market value of Raleigh is $22 million. The appropriate discount rate for the incremental cash flows is 8%. Raleigh is trying to decide whether it should offer 35% of its stocks or $12 million in cash to Harwich.

(a) what is the synergy from the merger?

(b) What is the value of Harwich to Raleigh?

(c) What is the cost to Raleigh of each alternative offer?

(d) What is the NPV to Raleigh of each alternative offer?

(e) Which alternative should Raleigh use?

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