Your firm is buying SmallCo. After purchasing SmallCo, you will be able to invest in a project with an upfront cost of $...
Your firm is buying SmallCo. After purchasing SmallCo, you will be able to invest in a project with an upfront cost of $35 million, which pays out $5 million after taxes per year for 28 years. Both your firm and SmallCo are all equity, and your unlevered cost of equity will be 0.13 after the merger. If you have to offer SmallCo's shareholders a $13 million premium to get them to accept the deal, what is the NPV of this merger?
Homework Answers
NPV of merger = present value of cash inflows - present value of cash outflows - premium paid
= 5 million*PVAF(13%, 28 years) - 35 million - 13 million
=-$10.794 million
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Please show work
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