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Homework answers / question archive / You are analyzing BCE's potential acquision of Canadian tire Corporation (CTC)
You are analyzing BCE's potential acquision of Canadian tire Corporation (CTC). BCE plans to offer $9 billion as the purchase price for CTC and will need to issue additional debt and equity to finance such a large acquisition. You estimate that the issuance costs will be $350 million and will be paid as soon as the transaction closes. You also estimate that the incremental free cash flows from the acquision will be 0.4 billion in the first year and will grow at 1.5% per year thereafter. s BCE's WACC in early 2020 IS 5.5%
What is the NPV of the proposed acquisition?
PV of Free cash flows =FCF1/(Re-g)
= 0.4 billion /(5.5% -1.5%)
= 10 billion
NPV =PV of expected inflows- Offer Price-Issuance costs
Issuance cost= 350 million or 0.35 billion
So,
NPV= 10 billion- 9 billion - 0.35 billion
= 0.65 billion
