Integrative. As Treasurer of Leisure Products, Inc; you are investigating the possible acquisition of Plastitoys. You have the following basic data: Leisure Product Plastitoys Forecast earning per...

Integrative. As Treasurer of Leisure Products, Inc; you are investigating the possible acquisition of Plastitoys. You have the following basic data:

You estimate that investors currently expect a steady growth of about 6 percent in Plastitoys's earnings and dividends. You believe that Leisure Products could increase Plastitoys's growth rate to 8 percent per year. After 1 year, without any additional capital investment required.

a. What is the economic gain from the acquisition?

b. What is the cost of the acquisition if Leisure Products pays $25 in cash for each share of Plastitoys? What is the NPV to Leisure of acquiring Plastitoys?

c. What is the cost of the acquisition if Leisure Products offers I share of Leisure Products for every3.96 shares of Plastitoys? What is the NPV to Leisure of acqui- ring Plastitoy?

d. Suppose immediately after the completion of the merger. everyone realizes that the expected growth rate will not be improved. Reassess the cost and NPV of the cash and share offers. Explain what you find.