Umida Ltd is considering acquiring Trinity Ltd. Both companies are all-equity firms. Umida and Trinity have 5 million and 6 million shares outstanding respectively. Umida generates $2 million in annual cash flows, while Trinity generates $2.5 million in cash flows annually. These cash flows are expected to remain constant perpetually. The risk-free rate is 2%. Umida has a beta of 1.2 and a cost of capital of 11.60%. Trinity’s beta is 1.4. After the takeover, Umida’s annual cash flow is expected to increase to $3 million per annum in perpetuity and its beta will be 1.4, while Trinity’s perpetual cash flow reduces by 0.5and beta remains the same after the takeover.
