BQ, Inc., is considering making an offer to purchase iReport Publications.

The vice president of finance has collected the following information:


BQ  iReport  
Price-earnings ratio  14.4   9.4   
Shares outstanding  1,800,000   160,000   
Earnings $3,800,000  $640,000   
Dividends $880,000  $330,000  
 
BQ also knows that securities analysts expect the earnings and dividends of iReport to grow at a constant rate of 4 percent each year. BQ management believes that the acquisition of iReport will provide the firm with some economies of scale that will increase this growth rate to 6 percent per year.
 
a. What is the value of iReport to BQ? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
  Value of iReport = 9,441,600
 
b. What would BQ's gain be from this acquisition? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
  Gain = 3,425,600
 
c. If BQ were to offer $44 in cash for each share of iReport, what would the NPV of the acquisition be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
 NPV = 2,401,600
 
d. What's the most BQ should be willing to pay in cash per share for the stock of iReport? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
  Maximum share price = 59.01
 
e. If BQ were to offer 290,000 of its shares in exchange for the outstanding stock of iReport, what would the NPV be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
  NPV = 
 
BQ's outside financial consultants think that the 6 percent growth rate is too optimistic and a 5 percent rate is more realistic.
 
f-1 What is the value of iReport to BQ now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
  Value of iReport =
 
f-2 What would BQ's gain be from this acquisition? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
  Gain =
 
f-3 If BQ were to offer $44 in cash for each share of iReport, what would the NPV of the acquisition be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
  NPV =
 
f-4 What's the most BQ should be willing to pay in cash per share for the stock of iReport? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
  Maximum share price =    
 
f-5 If BQ were to offer 290,000 of its shares in exchange for the outstanding stock of iReport, what would the NPV be? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
  NPV =