Question

Three Guys Burgers, Inc., has offered $18 million for all of the common stock in Two Guys Fries, Corp. The current market capitalization of Two Guys as an independent company is $15.9 million. Assume the required return is 8.1 percent and the synergy from the acquisition is a perpetuity.What is the minimum annual synergy that Three Guys feels it will gain from the acquisition? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Answer 1

The minimum annual synergy that Three Guys feels it will gain from the acquisition is $ 178,500

Step-by-step explanation:

Value of synergy gain from acquisition = 18 - 15.9 = 2.1 million

Annual synergy gain = 2.1 *.085 = .1785 million or $ 178,500

Annual synergy gain = $ 178,500