Part I You are advising company X on its merger and acquisition case. The buyer company offers X two options. Option #1 is $100 million cash at the acquisition date. Option #2 is $50 million cash on the acquisition date and 2 additional payments of $50 million each after the first year and the second year.
a. The management team of X perceives at 20 percent annual discount rate. Which option should X choose? Show your work.
b. After reading the offering letter carefully, X’s legal team found an additional clause from the buyer It says that the 2 additional payments of $50 million are conditional on market performance. X’s management team accesses the market condition is 50-50 chance. Which option should X choose instead? Show work
a. The management team of X perceives at 20 percent annual discount rate. Which option should X choose? Show your work.
b. After reading the offering letter carefully, X’s legal team found an additional clause from the buyer It says that the 2 additional payments of $50 million are conditional on market performance. X’s management team accesses the market condition is 50-50 chance. Which option should X choose instead? Show work
.
Part II: What is the definition of internal rate of return (IRR)? If you expect the annual interest rates are much different in the next 10 years, would the IRR be the ideal measure? Why or why not?
Part II: What is the definition of internal rate of return (IRR)? If you expect the annual interest rates are much different in the next 10 years, would the IRR be the ideal measure? Why or why not?
