i) Steven would become a wholly owned subsidiary of Charles. i) Revenues will continue to grow to 4.3% for the next five years and will level off at 4% thereafter. iii) The cost of goods sold will represent 95% of revenue going forward. iv) Sales-force layoff will reduce Sales, general and Administration (SG&A) expenses to $22 million next year, with a 2% growth rate going forward. v) These layoff and other restructuring charges are expected to result in expensed restructuring charges of $30 million, $15 million, and $5 million (respectively) over the three years period. vi) Noncash expenses are expected to remain around $7 milion going forward. vii) Interest expense are expected to remain around $11.5 million going forward A tax rate of 31% is assumed going forward. ix) Charles's cost of equity is 12% Steven's current market capitalization is $250 million. x) xi) Charles will offer Steven a takeover premium of 20% over current market capitalization. QUESTIONS a) Make your recommendation about whether or not the acquisition should be pursued.
i) Steven would become a wholly owned subsidiary of Charles. i) Revenues will continue to grow to 4.3% for the next five years and will level off at 4% thereafter. iii) The cost of goods sold will represent 95% of revenue going forward. iv) Sales-force layoff will reduce Sales, general and Administration (SG&A) expenses to $22 million next year, with a 2% growth rate going forward. v) These layoff and other restructuring charges are expected to result in expensed restructuring charges of $30 million, $15 million, and $5 million (respectively) over the three years period. vi) Noncash expenses are expected to remain around $7 milion going forward. vii) Interest expense are expected to remain around $11.5 million going forward A tax rate of 31% is assumed going forward. ix) Charles's cost of equity is 12% Steven's current market capitalization is $250 million. x) xi) Charles will offer Steven a takeover premium of 20% over current market capitalization. QUESTIONS a) Make your recommendation about whether or not the acquisition should be pursued.
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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Transcribed Image Text:i)
Steven would become a wholly owned subsidiary of Charles.
i) Revenues will continue to grow to 4.3% for the next five years and will level off at 4%
thereafter.
iii)
The cost of goods sold will represent 95% of revenue going forward.
iv)
Sales-force layoff will reduce Sales, general and Administration (SG&A) expenses to $22
million next year, with a 2% growth rate going forward.
v) These layoff and other restructuring charges are expected to result in expensed restructuring
charges of $30 million, $15 million, and $5 million (respectively) over the three years period.
vi) Noncash expenses are expected to remain around $7 milion going forward.
vii)
Interest expense are expected to remain around $11.5 million going forward
A tax rate of 31% is assumed going forward.
ix) Charles's cost of equity is 12%
Steven's current market capitalization is $250 million.
x)
xi) Charles will offer Steven a takeover premium of 20% over current market capitalization.
QUESTIONS
a) Make your recommendation about whether or not the acquisition should be pursued.
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