Firm ABC Ltd is planning a takeover of XYZ Ltd, whicn operates in a different industry from ABC. The takeover will cost $54.5 million, and is expected to generate additional cash flow of $5.7 million per year in perpetuity. Shown below are the Weighted Average Cost of Capital of the two firms. Firm WACC АВС 10.5% XYZ 7.5% What is the NPV of the acquisition of XYZ Ltd? O a. $-0.21 million O b. $21.50 million O c. $-4.31 million O d. $17.50 million

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
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Firm ABC Ltd is planning a takeover of XYZ Ltd, which operates in a different industry from ABC. The takeover will cost $54.5 million, and is expected to
generate additional cash flow of $5.7 million per year in perpetuity.
Shown below are the Weighted Average Cost of Capital of the two firms.
Firm
WACC
АВС
10.5%
XYZ
7.5%
What is the NPV of the acquisition of XYZ Ltd?
a. $-0.21 million
O b. $21.50 million
O c. $-4.31 million
O d. $17.50 million
Clear my choice
Transcribed Image Text:Firm ABC Ltd is planning a takeover of XYZ Ltd, which operates in a different industry from ABC. The takeover will cost $54.5 million, and is expected to generate additional cash flow of $5.7 million per year in perpetuity. Shown below are the Weighted Average Cost of Capital of the two firms. Firm WACC АВС 10.5% XYZ 7.5% What is the NPV of the acquisition of XYZ Ltd? a. $-0.21 million O b. $21.50 million O c. $-4.31 million O d. $17.50 million Clear my choice
A firm has division in two different industries - clothing and tourism. It is considering two projects, one in each industry. The following table shows the
typical beta of fırms operating wholly within those industries, along with the Internal Rate of Return of each project. The risk free rate of return is 3.3% and
the expected return on the market is 12.2%.
Project
Industry
Beta
IRR
А
Clothing
0.9
11.61%
В
Tourism
1.7
17.93%
What is the appropriate cost of capital to use as a discount rate to evaluate these projects?
O a. Project A: 14.3%
Project B: 24.0%
оБ. Project A: 11.3%
Project B: 24.0%
c. Project A: 11.3%
Project B: 18.4%
O d. Project A: 14.3%
Project B: 18.4%
Transcribed Image Text:A firm has division in two different industries - clothing and tourism. It is considering two projects, one in each industry. The following table shows the typical beta of fırms operating wholly within those industries, along with the Internal Rate of Return of each project. The risk free rate of return is 3.3% and the expected return on the market is 12.2%. Project Industry Beta IRR А Clothing 0.9 11.61% В Tourism 1.7 17.93% What is the appropriate cost of capital to use as a discount rate to evaluate these projects? O a. Project A: 14.3% Project B: 24.0% оБ. Project A: 11.3% Project B: 24.0% c. Project A: 11.3% Project B: 18.4% O d. Project A: 14.3% Project B: 18.4%
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