Tancesco Inc. is considering acquiring Aldine Corp. which it has estimated will generate the following after tax cash flows over the next three years ($000). After that management expects a growth rate of 3% indefinitely.
$\begin{array}{lr}1&2&3\\$580&\$600&\$650
\end{array}$
In addition, Tancesco thinks a merger will produce $40,000 per year in after tax synergies. Aldine has 65,000 shares of common stock outstanding. The company's beta is 1.6, the market is currently returning an average of 12% on stock investments and short term treasury bills are yielding 3%.
What should Tancesco be willing to pay per share for Aldine if management is willing to value the acquisition over an indefinitely long time horizon?
($000)

Question

Tancesco Inc. is considering acquiring Aldine Corp. which it has estimated will generate the following after tax cash flows over the next three years ($000). After that management expects a growth rate of 3% indefinitely.
 $\begin{array}{lr}1&2&3\\$580&\$600&\$650
\end{array}$
 In addition, Tancesco thinks a merger will produce $40,000 per year in after tax synergies. Aldine has 65,000 shares of common stock outstanding. The company's beta is 1.6, the market is currently returning an average of 12% on stock investments and short term treasury bills are yielding 3%.
What should Tancesco be willing to pay per share for Aldine if management is willing to value the acquisition over an indefinitely long time horizon?
($000)

Quizplus · Accepted Answer

The Answer of Tancesco Inc. is considering acquiring Aldine Corp. which it has estimated will generate the following after tax cash flows over the next three years ($000). After that management expects a growth rate of 3% indefinitely.
 $\begin{array}{lr}1&2&3\\$580&\$600&\$650
\end{array}$
 In addition, Tancesco thinks a merger will produce $40,000 per year in after tax synergies. Aldine has 65,000 shares of common stock outstanding. The company's beta is 1.6, the market is currently returning an average of 12% on stock investments and short term treasury bills are yielding 3%.
What should Tancesco be willing to pay per share for Aldine if management is willing to value the acquisition over an indefinitely long time horizon?
($000)

Tancesco Inc 123$580$600$650\begin{array}{lr}1&2&3\\\$580&\$600&\$650\end{array}1$580​2$600​3$650​ In Addition, Tancesco Thinks a Merger Will Produce $40,000 Per

Tancesco Inc $\begin{array}{lr}1&2&3\\\$580&\$600&\$650\end{array}$ In Addition, Tancesco Thinks a Merger Will Produce $40,000 Per