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?

Answer 1

Annual synergy gain = $ 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