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BartSMP [9]
3 years ago
6

VelSad is contemplating the acquisition of Po, Inc. The values of the two companies as separate entities are $32 million and $16

million, respectively. VelSad estimates that by combining the two companies, it will reduce marketing and administrative costs by $560,000 per year in perpetuity. VelSad can either pay $20 million cash for Po or offer Po a 44% holding in VelSad. The opportunity cost of capital is 10%.What is the cost of the stock offer?
Business
1 answer:
svetoff [14.1K]3 years ago
7 0

Answer:

7.58m

Explanation:

The VelSad is considering to acquire Po, Inc. by offer of 20 million cash or either 44% holding. The cost of acquisition refers to all cost incurred by a company to acquire another company. The benefit VelSad can get after acquiring Po, Inc is that it can save marketing and administrative cost by $560,000 every year. The cost of stock offer is 7.58 million. This is calculated by taking 44% of VelSad value and then discounting it at cost of capital which is 10%.

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Scrat [10]

Answer: $230,000

Explanation:

In our case,

Undiscounted future cash inflows from the sale of the product = $ 600,000 and

Carrying value of the asset = $ 720,000.

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Therefore,

Impairment Loss = Carrying value - Fair value of the asset

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melomori [17]

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4 0
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Shkiper50 [21]

Answer:

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Best of luck.

Download xlsx
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