Your firm is considering purchasing a smaller firm, Western Co. Analysts project that the merger will result in incremental free flows and interest tax savings with a present value of $72.52 million, and they have determined that the appropriate discount rate for valuing Eastern Co. as a stand alone firm is 16 percent.
currently has 380 Million Shares Outstanding
Max share price offere = $18.13
Exchange Ratio = 0.4
Considering the correlation of your firm and Western Co's cash flow is -.19, does this change your answer? How should your firm finance this acquisition?