Merger analysis -- buy or not?Assume earnings-before-tax of $400 million in 2020, $440 million in 2021, and $484 in2022. Constant growth thereafter at 6% per year. Cost of equity = 14%. Market price oftarget company is $42.60/share. You're willing to bid a maximum of 10% over market price.Tax rate = 21%; annual depreciation = $80 million, with anticipated reinvestment at 75% ofdepreciation. Assume 90 million shares outstanding.

Detailed workings and ExplanationStep 1: Calculate the Net IncomeFirst, we compute the net income by…

Answered: Merger analysis -- buy or not? Assume…

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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The firm is contemplating the following (base case): Vehicle acquisition cost $ 48,000 Years of useful life (economic life) 1 Tax rate 25% Required rate of return on equity 11% Required return on debt 6% Debt ratio 40% Annual revenues $ 175,000 Operating expenses (excluding depreciation) $ 115,000 1.Depreciate straight-line over the year of useful life, down to $0 over one year. The maximum dividend is paid at year end. Ignore any working capital effects. Capital charge will be based on the assets at the beginning of each year. What's the times-interest-earned?
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A firm after -tax operating income ( after-tax EBIT)$90,000 in 2018. The value of depreciation is $8000 in 2018. Operating working capital increased by $20,000, and the firm purchased $30,000 of assets. The firm's free cash flow is Given the rate information in the table belowCan you calculate the maturity risk premium? 3 month T-bill = 2.5% (risk-free rate), 30 years Bonds-5.0%, 30year corporate bonds 7.0% Inflation Rate- 3.6% and the liquidity risk premium is 0.03%
The firm is contemplating the following (base case): Vehicle acquisition cost $ 48,000 Years of useful life (economic life) 1 Tax rate 25% Required rate of return on equity 11% Required return on debt 6% Debt ratio 40% Annual revenues $ 175,000 Operating expenses (excluding depreciation) $ 115,000 1.Depreciate straight-line over the year of useful life, down to $0 over one year. The maximum dividend is paid at year end. Ignore any working capital effects. Capital charge will be based on the assets at the beginning of each year. What's the P&L?
A company has EBITDA of $100m. If a private equity fund acquires this company in a Leveraged Buy-Out for an EBITDA multiple of 3x, borrowing 50% of the purchase price, and sells the company for a multiple of 5x when the company's EBIDTA has increased to $150m, what will be the value of the equity investment in the company upon exit? What is it as a multiple of the initial equity investment? 8)
Tecumseh Inc. is analyzing the possible merger with Devonshire Inc. Savings from the merger are estimated to be a one-time after-tax benefit of $156 million. Devonshire Inc. has 5.2 million shares outstanding at a current market price of $82 per share. What is the maximum cash price per share that could be paid for Devonshire Inc.? (Omit "$" sign in your response.) Maximum cash price per share $
Hello please help me option for b part are also given
Intrinsic valuation. Given the following: Free cash flows: year 1: -$15m year 2: $25m year 3: $30m WACC = 10%. After 3 years, cash flows will grow at a constant 4% $15m in marketable securities, $80m in debt, and 1 million in shares calculate: a. the horizon value b. the current value of operations c. the intrinsic value per share (Show all work)
Company A plans to maintain its optimal capital structure of 40 percent debt, 10 percent preferred stock, and 50 percent common equity. The required return on each component source of capital is given as follows: debt 8.00% and preferred stock 8.60%. Common stock is currently selling for $50 per share, and flotation costs for new common stock will amount to $5 per share. The expected dividend next year for this company is $2.50. Furthermore, dividends are expected to grow at a 6 percent rate far into the future. The corporate tax rate is 34 percent. What is the WACC of this company? A. 8.75% B. There is not enough information to answer this question. C. 9.84% D. 10.00%
Recapitalization A proposed recapitalization plan for Focus Corporation would change its current all-equity capital structure to leveraged capital structure. The proposal is for Focus to sell $53,000,000 worth of long-term debt at an interest rate of 7% and then repurchase as many shares as possible at a price of $25 per share. Focus currently has 4,700,000 shares outstanding and expects EBIT to be $22,000,000 per year in perpetuity. Ignoring taxes, calculate the following: a. The number of shares outstanding, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization. b. The earnings per share (EPS) and the return on equity (ROE) for Focus under the current and proposed capital structures. c. The EBIT where EPS is the same for both capital structures. d. The EBIT where EPS is zero for both capital structures. a. The number of shares outstanding for Focus if it adopts the proposed recapitalization is shares. (Round to the nearest whole…
Parcel Corporation expects to pay a dividend of $5.15 per share next year, and the dividend payout ratio is 50 percent. If dividends are expected to grow at a constant rate of 8 percent forever, and the required rate of return on the stock is 13 percent, calculate the present value of growth opportunities. Multiple Choice O O O $103.00 $79.23 $23.77 $71.85
Notes for 2024: Sales are estimated to be $85,000 in 2024 Assume the following: COGS are Variable $2000 of the Operating Expenses are Fixed Depreciation and the Remainder of the Operating Expenses are Fixed The firm will maintain its dividend payout ratio this year Cash, Accounts Receivable, Inventories, Net Plant, Accounts Payable and Accrued Payables are Spontaneous Market Securities, Bonds Payable and Common Stock are Discretionary $500 of Bonds Payable are Current and Will be Repaid at the Beginning of the Year Below is the 2023 Income Statement and Balance Sheet data you will be using to complete your forecast. Income Statement For the Year Ended December 31, 2023 Sales 70,000 COGS 45,000 Gross Profit 25,000 Operating Expenses 8,000 Depreciation 5,000 13,000 EBIT 12, 000 Interest Expense 1,300 EBT 10, 700 Tax Expense 2, 247 Earning After Taxes 8, 453 Dividends 3,000 Addition to Retained Earnings 5, 453 Balance Sheet December 31, 2023 Cash 8, 100 Marketable Securities 2,000…

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