The Watro Personal Computer Company is considering merger to achieve better growth and profitability. It has narrowed potential merger candidates to two firms. The Alber Company, a producer of PBXs, has a strong research department and a good record of internal profitability. The Saben Corporation operates a chain of variety stores and has a very high
Each firm pays 15% interest on its debt and has a 40% tax rate. Ten years of supernormal growth are forecast, followed by no growth.
a) What are the total assets of each firm?
b) What is each companys NOI if it earns its before-tax r on total assets?
c) What is the indicated market value of each firm?
d) Compare Watros increase in value as a result of merger at market value with the cost of acquiring Alber or Saben if the combined firms have the following financial parameters:
