A sporting goods manufacturer has decided to expand into a related business. Management estimates that to build andstaff a facility of the desired size and to attain capacity operations would cost $820 million in present value terms.Alternatively, the company could acquire an existing firm or division with the desired capacity. One such opportunity is adivision of another company. The book value of the division's assets is $650 million and its earnings before interest andtax are presently $90 million. Publicly traded comparable companies are selling in a narrow range around 12 timescurrent earnings. These companies have book value debt-to-asset ratios averaging 40 percent with an average interestrate of 10 percent.a. Using a tax rate of 31 percent, estimate the minimum price the owner of the division should consider for its sale. (Donot round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.)Minimum pricemillion

Minimum price refers to the charge that should be paid by the holders of the credit card at the time…

Answered: A sporting goods manufacturer has…

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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Answer the question. As part of a broad effort to invigorate its pipeline and move more aggressively into biotechnology, a major pharmaceutical company plans to set up a new division dedicated to developing biotherapeutic drugs and research technologies. The company expects to pay $125 million for set up costs of its new division now and $7 million operating costs each year for the next 13 years. The company estimates that the new division will be able to generate annual revenue of $42 million beginning 6 years from now. What is the conventional Benefit-to-Cost ratio for this investment if the company's discount rate is 9 % per year and the project life is 13 years? Answer:
Royal Dutch Shell PLC (ticker RDS) is a large, multinational oil company. The firm is preparing to purchase a semi-submersible oil production platform for $18 million. Additionally, it is going to cost $1,7 million t move the platform to the Mars oil-field and secure it in location. While preparing the oil field for production, an additional $2.7 million dollars will be spent on research, geological surveys, and training If this acquisition is going to be fully depreciated over 5 years using straight-line depreciation, what are the yearly depreciation expenses in this case? OA. $4.14 million OB. $3.94 million OC. $360 million OD. $4.48 million
Company A is preparing a deal to acquire company B. One analyst estimated that the merger would produce 175 million dollars of annual cost savings, from operations, general and administrative expenses and marketing. These annual cost savings are expected to begin three years from now, and grow at 3% a year. In addition the analyst is assuming an after-tax integration cost of 0.25 billion, and taxes of 21%. Assume that the integration cost of 0.25 billion happens right when the merger is completed (year 0). The analyst is using a cost of capital of 9% to value the synergies. Company B’s equity is trading at 4.3 B dollars (market value of equity). Company A is planning to pay a 32% premium for company B. a) Compute the value of the synergy as estimated by the analyst. Please show your calculations. b) Does the estimate of synergies in a) justify the premium that company A offered to company B?
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A company is considering two mutually exclusive expansion plans. Plan A requires a $40 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.39 million per year for 20 years. Plan B requires a $15 million expenditure to build a somewhat less efficient, more labor-intensive plant with an expected cash flow of $3.36 million per year for 20 years. The firm's WACC is 9%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Calculate each project's NPV. Round your answers to two decimal places. Do not round your intermediate calculations. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Plan A: $ fill in the blank million Plan B: $ fill in the blank million Calculate each project's IRR. Round your answer to two decimal places. Plan A: fill in the blank Plan B: fill in the blank By graphing…
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