Question

Fly By-Night plans to acquire Flash in-the-Pan Restaurants. Neither firm has debt. The forecasts of Fly By-Night show that the purchases would increase its annual after-tax cash flow by $350,000 indefinitely (i.e., in perpetuity). The current market value of Flash-in-the-Pan is $9 million. The current market value of Fly-By-Night is $23 million. The appropriate discount rate for the incremental cash flows is 8 percent. Fly-By-Night is trying to decide whether it should offer 35 percent of its stock or $12 million in cash to Flash-in-the-Pan.a.What is the synergy from the merger

Answer 1

the synergy from the merger is $4,375,000

Step-by-step explanation:

The computation of the synergy from the merger is shown below:

= Annual cash flow ÷ discounted rate

= $350,000 ÷ 0.08

= $4,375,000

hence, the synergy from the merger is $4,375,000

We simply applied the above formula so that the correct value could come

And, the same is to be considered

All other values would be ignored