Question

Company B and Company T’s financial conditions are given below: Company B Company T NE ($)...

Company B and Company T’s financial conditions are given below:

Company B Company T
NE ($) 4,000,000 1,000,000
Shares outstanding (N) 400,000 200,000
Share price ($/share) 120 60

Company B plans to make an all cash offer to Company T with a premium of 30%.

It is expected that this acquisition will generate a perpetual net cash flow of $ 700,000 per year and Company B has a cost of capital of 12%.

The price per share for Company BT will be:

$123.3

$124.6

$125.6

$127.3

$130.3

The P/E of this new company BT will be:

7.8

8.4

8.6

8.8

9.2

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