Question

Fly-By-Night Couriers is analyzing the possible acquisition of Flash-in-the-Pan Restaurants. Neither firm has debt. The forecasts of Fly-By-Night show that the purchase would increase its annual aftertax cash flow by $390,000 indefinitely. The current market value of Flash-in-the-Pan is $8 million. The current market value of Fly-By-Night is $29 million. The appropriate discount rate for the incremental cash flows is 8 percent. Fly-By-Night is trying to decide whether it would offer 30 percent of its stock or $12 million in cash to Flash-in-the-Pan. a. What is the synergy from the merger

Answer 1

Answer:

the synergy of the merger is $4,875,000

Explanation:

The computation of the synergy of the merger is shown below;

= Annual cash flow ÷ discount rate

= $390,000 ÷ 8%

= $4,875,000

By dividing the annual cash flow from the discount rate we can get the synergy of the merger

Hence, the synergy of the merger is $4,875,000