10poincsProblem 21-9 Merger Gains and Costs (LO2)Velcro Saddles is contemplating the acquisition of Skiers Airbags Incorporated. The values of the two companies as separate entiare $34 million and $17 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketiand administrative costs by $570,000 per year in perpetuity. Velcro Saddles is willing to pay $25 million cash for Skiers'. Theopportunity cost of capital is 5%.a. What is the gain from the merger?Note: Enter your answer in millions rounded to 2 decimal places.b. What is the cost of the cash offer?Note: Enter your answer in millions.c. What is the NFV of the acquisition under the cash offer?Note: Do not round Intermediate calculations. Enter your answer in millions rounded to 2 decimal places.Answer is complete but not entirely correct.008a. Gain from the mergerS9.50millionb. Cost of the cash offerS251millionc. NPVS1.50milior

Part 2: Explanation: a. Gain from the mergerStep 1: Calculate the annual savings from combining the…

Answered: 10 poincs Problem 21-9 Merger Gains and…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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13. The following information relates to two companies Alpha plc Beta plc Profit after tax £200,000 £800,000 P/E ratio 16 21 The management of Beta estimate that if they acquire Alpha they could save an after tax cost of £100,000 annually. Additionally, they estimate that the P/E ratio of the new company would be 20. On the basis of these estimates, what is the maximum price that Beta plc should offer for Alpha? A £6.3m B £5.2m C £4.2m D £2.0m
Alpha
Exercise 12-2 (Algo) Net Present Value Analysis [LO12-2] The management of Kunkel Company is considering the purchase of a $26,000 machine that would reduce operating costs by $6,500 per year. At the end of the machine's five-year useful life, it will have zero salvage value. The company's required rate of return is 16%. Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using table. Required: 1. Determine the net present value of the investment in the machine. 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the net present value of the investment in the machine. (Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount. Use the appropriate table to determine the discount factor(s).) Net present value…
20
59 A corporation uses net present value techniques in evaluating its capital investment projects. The company is considering a new equipment acquisition that will cost P100,000, fully installed, and have a zero salvage value at the end of its five-year productive life. The corporation will depreciate the equipment on a straight-line basis for both financial and tax purposes. The corporation estimates P70,000 in annual recurring operating cash income and P20,000 in annual recurring operating cash expenses. The corporation's desired rate of return is 12% and its effective income tax rate is 30%. What is the net present value of this investment on an after-tax basis?
Unequal Lives The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $10 million but realizes after-tax inflows of $4 million per year for 4 years. After 4 years, the machine must be replaced. Machine B costs $15 million and realizes after-tax inflows of $3.5 million per year for 8 years, after which it must be replaced. Assume that machine prices are not expected to rise because inflation will be offset by cheaper components used in the machines. The cost of capital is 10%. Using the replacement chain approach to project analysis, by how much would the value of the company increase if it accepted the better machine? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places. $ million What is the equivalent annual annuity for each…
Problem 22-15 Management of Braden Boats, Inc. is considering an expansion in the firm's product line that requires the purchase of an additional $160,000 in equipment with installation costs of $15,000 and removal expenses of $4,500 (Note: the removal expenses are considered terminal cash flows and not associated with the installation of the new equipment). The equipment and installation costs will be depreciated over five years using straight-line depreciation. The expansion is expected to increase earnings before depreciation and taxes as follows: Years 1 and 2 $64,000 Years 3 and 4 $51,000 The firm's income tax rate is 30 percent and the weighted-average cost of capital is 6 percent. Based on the net present value method of capital budgeting, should management undertake this project? Use Appendix B to answer the question. Use a minus sign to enter a negative value, if any. Round your answer to the nearest dollar NPV: $ The firm -Select- Year 5 $50,000 make the investment.
5.000.000 ₺ to realize a new venture ABC Holdingwants to buy a factory worth. Also for the workshops sectionPayment of 2.500.000 ₺ and 3.000.000 ₺ for the construction of administrative buildingswill be made. The factory, which has an economic life of 10 years,It is foreseen to be sold for 2.500.000 ₺. It will be produced from the factorythe demand for the product is 50,000 pieces / year and will not change for 10 yearsIt is estimated. The unit cost of the product is 75 ₺ and the sales price is 150 ₺prices are increasing at the rate of inflation (12%). From investmentSince the lowest expected interest rate is 18%, this investment should be made andEvaluate the failure to do so according to the present tense method.
4
Question 20 Arrow Electronics is considering Projects S and L, which are mutually exclusive, equally risky, and not repeatable. Project S has an initial cost of $1 million and cash inflows of $370,000 for 4 years, while Project L has an initial cost of $2 million and cash inflows of $720,000 for 4 years. The CEO wants to use the IRR criterion, while the CFO favors the NPV method, using a WACC of 6.67%. You were hired to advise the firm on the best procedure. If the wrong decision criterion is used, how much potential value would the firm lose? That is, what is the difference between the NPVs for these two projects? Your answer should be between 112000 and 202000, rounded to even dollars (although decimal places are okay), with no special characters. 1,000,000
D3
LO 3 E3.14 Identification of Variable Interest Entity and Primary Beneficiary Softek Corporation forms a separate legal entity, Startek, to develop new technology. The entity is funded by $4,000,000 in outside equity and $26,000,000 in debt. Softek guarantees Startek's debt. The entity is expected to generate the following cash flows at the end of one year: Cash Flow $11,000,000 33,000,000 55,000,000 A discount rate of 10 percent is appropriate. Required b. Probability 0.40 0.20 0.40 a. Assume qualitative analysis of Startek's VIE status is inconclusive. Quantitatively analyze whether Startek is a variable interest entity. Assume Startek is a variable interest entity. Identify the factors that determine whether Softek is the primary beneficiary that must consolidate Startek.

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