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Spacely Co. is looking at acquiring Quigly, Inc. in an all-cash deal. Spacely Co. has 275,000 shares outstanding at $83.50 per share and Quigly, Inc., a private company, has expected annual cash flows of $535,000 per year (forever). Both firms have a 9.5% cost of capital. Spacely Co. anticipates that with their marketing & sales expertise, they could increase Quigly, Inc.'s annual cash flows by 2.5% annually if the firms combine. Show each as a dollar figure, rounded to the nearest dollar. a) What is the current market value of the target? b) What is the total incremental value of the merger to the acquirer? (Hint: this is the PV of the increase in annual cash flows) c) What is the maximum cash price Spacely Co. should offer?
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