Dansville and Tiki are allequity firms Dansville has 120000

Dansville and Tiki are all-equity firms. Dansville has 120,000 shares outstanding at a market price of $35 a share. Tiki has 57,000 shares outstanding at a price of $26 a share. Tiki is acquiring Dansville for $4,750,000 in cash. The synergy value of the acquisition is $875,000. What is the net present value of acquiring Dansville to Tiki?

Solution

PURCHASE PRICE OF DANSVILLE = $4750,000

VALUE OF DANSVILLE AFTER TAKING INTO CONSIDERATION SYNERGY =

MARKET VALUE OF SHARES + SYNERGY = (120000 X 35) + 875000 = $5075,000

SO NPV = VALUE OF DANSVILLE AFTER TAKING INTO CONSIDERATION SYNERGY - PURCHASE PRICE

NPV = $5075,000 - $4750,000 = $325000

ANSWER : $325000 (NPV)