QUESTION 4 (a) XYZ Ltd is analysing the possible acquisition of ABC Group. The current market value of xyz Ltd is K8 million and ABC Group Pty Ltd is K6 million. It is estimated that the merger will generate a total annual after-tax cash flow of K1 million. The appropriate discount rate is for the incremental cash flow is 10%. Two offers are proposed: 1. Offer 50% of its shares 2. K6.5 million in cash. What is the cost of each alternative? What is the NPV of each alternative? ii) iii) Which alternative should XYZ use? i)

QUESTION 4 (a) XYZ Ltd is analysing the possible acquisition of ABC Group. The current market value of xyz Ltd is K8 million and ABC Group Pty Ltd is K6 million. It is estimated that the merger will generate a total annual after-tax cash flow of K1 million. The appropriate discount rate is for the incremental cash flow is 10%. Two offers are proposed: 1. Offer 50% of its shares 2. K6.5 million in cash. What is the cost of each alternative? What is the NPV of each alternative? ii) iii) Which alternative should XYZ use? i)

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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As an analyst of Firm A, you are investigating the possible acquisition of Firm T. You estimate that investors currently expect a 6% growth in A's earnings and dividends. Under new management this growth rate would be increased to 8%, without any additional capital investment. You are considering a stock swap merger. What is the maximum exchange ratio that you can afford? EPS Dividend/Share Number of Shares Stock Price Firm A $5 $3 1000000 $90 Firm T $1.5 $0.8 600000 $20
Bentley Corporation and Rolls Manufacturing are considering a merger. The possible states of the economy and each company’s value in that state are shown here: State Probability Bentley Rolls Boom .70 $ 330,000 $ 300,000 Recession .30 130,000 100,000 Bentley currently has a bond issue outstanding with a face value of $145,000. Rolls is an all-equity company.
QUESTION 3 Warwickshire plc is appraising a new project in a different line of business to its core operations. It has identified a suitable company, Nottingham plc, to use as a proxy. Details are as follows: Equity beta of Nottingham 1.250 Market value of Nottingham's debt: £39m Market value of Nottingham's equity: £45m Corporation Tax rate (both companies): 30% If Warwickshire is finance by £188m of equity and £95m of debt what would a suitable proxy equity beta for Warwickshire plc to use in the appraisal process? OA. 1.053 О в. 1.182 O.0.778 OD.1.486 O E. 1.504
None
Acquiring Corporation is considering a takeover of Takeover Target Incorporated. Acquiring has 16 million shares outstanding, which sell for $30 each. Takeover Target has 8 million shares outstanding, which sell for $23 each. If the merger gains are estimated at $40 million, what is the highest price per share that Acquiring should be willing to pay to Takeover Target shareholders? Highest price per share
None
Problem 3. BitBox has raised $10 million in a Series A round with $40 million post-money value and a 1.5x liquidation preference, and $25 million in a Series B round with a $75 million post-money value and a 3x liquidation preference plus seniority over Series A. What will Series A, Series B, and common shareholders receive if BitBox is sold for [a] $85 million? [b] $100 million? [c] $200 million? [d] $300 million?
Pitt Company is considering two alternative investments. The company requires a 12% return from its investments. Neither option has a salvage value. Project X Project Y Initial investment $244,049 $180,396 Net cash flows anticipated: Year 1 83,000 35,000 Year 2 59,000 56,000 Year 3 91,000 71,000 Year 4 82,000 68,000 Year 5 77,000 27,000 A. Compute the IRR for both projects using the IRR spreadsheet function. Project X fill in the blank 1% Project Y fill in the blank 2% B. Which project should be recommended.
Answer is 11euros
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 $49,000,000 worth of long-term debt at an interest rate of 7.75% and then repurchase as many shares as possible at a price of $22 per share. Focus currently has 4,900,000 shares outstanding and expects EBIT to be $25,000,000 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 The per-share price for Focus if it…
Ex. 3 Company A is considering acquiring company B. Calculate the combined PV of Companies A and B, the goodwill and the net gain for the shareholders of company A and shareholders of Company B, considering the following financial information: Present value of Company A Present value of Company B Cost saving from merger of A and B Price A pay for B (EUR) 30 75 22 80 mn mn mn mn The present value of company B increase by EUR 7 mn on the back of rumors about the potential merger. Calculate the adjusted goodwill and adjusted gain for the shareholders of company A and shareholders of Company B after the rumors.
Vijay

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