Silverstone Technologies, Inc. is considering acquiring a software company for $500 million. Since Silverstone has a large cash reserve, they plan to use $200 million in debt financing and invest $300 million in equity to acquire the company. What weights should Silverstone use in computing WACC for this acquisition?
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What weights should silverstone use in computing wacc for this acquisition for this financial accounting question?
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- A fin-tech firm is considering devising a new payment system. The initial cost for developing this system will be $20 million today. Once the system development is completed, in one year, the system will be sold to a major bank for $25 million. Assume that both the development of the system and the sale of the project for $25 million are certain. The firm can pay $20 million of investment entirely using its own cash. Or the firm can also raise funds to finance part of the investment by issuing a security that will pay investors $11 million in one year. Suppose the risk-free rate of interest is 10%. What is the NPV of this project if the fin-tech firm invests its own money and does not issue the new security? What is the NPV if the firm issues the new security? Briefly explain your answer by comparing the NPVsCloth plc has estimated the potential cash flows that would arise if they were successful in taking over one of their French customers, Trendy Limited. Following the proposed takeover, Trendy Limited would become Cloth (France), a subsidiary of Cloth plc.Cloth (France)’s functional currency would be the Euro. The estimated cash flows for the project are given below and management considers that a discount rate of 10% reflects the riskiness of the project. Cloth plc is planning to repatriate all net cash flows generated by the subsidiary at the end of each year in the form of an annual dividend payment. Year 0 Year 1 Year 2 Year 3 Total cash inflows (Euro million) 0 30 22 21Total cash outflows (Euro million) 30 16…ABC Industries is considering an investment that requires the company to issue new equity. The project will cost $100M but will add $120M to the company’s value after it is completed. The company’s true value absent the new project is $1B. Management knows this true value, but outside investors mistakenly value the company at $600M absent the project. Investors are aware of the project and correctly forecast that it will add $120M to the company’s value. The company has no cash, and if it wants to invest in the project, it must issue equity. Now assume that the market will soon learn the true value of the company. However, the company cannot wait to invest in the project. If it does not invest now, then it will lose access to the project. What will the company’s stock price be once the market learns the company’s true value if the company issued equity and invested in the project? What will the company’s stock price be once the market learns the true value if the company passed up…
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- 2. During the discussion of the potential IPO and East Coast Yachts’ future, Dan states that hefeels the company should raise $60 million. However, Larissa points out that if the company needsmore cash soon, a secondary offering close to the IPO would be potentially problematic. Instead,she suggests that the company should raise $90 million in the IPO. How can we calculate theoptimal size of the IPO? What are the advantages and disadvantages of increasing the size of theIPO to $90 million?Lana is thinking about making an iventment in a new venture called BluePearl - after performing an analysis of similar firms, she discovered several other firms (3) with the following Enterprise Value to FCF ratios: Firm 1: 5.9 Firm 2: 7.6 Firm 3: 9.1 The cashflows for BluePearl this year are expected to be $1,300,000. If BluePearl doesn't have any debt or cash currently, and 700,000 shares outstanding - what is the Price Per Share for BluePearl?Systems has 6.45 billion shares outstanding and a share price of $17.25. Quisco is considering developing a new networking product in-house at a cost of $497 million. Alternatively, Quisco can acquire a firm that already has the technology for $899 million worth (at the current price) of Quisco stock. Suppose that absent the expense of the new technology, Quisco will have EPS of $0.828. a. Suppose Quisco develops the product in-house. What impact would the development cost have onQuisco's EPS? Assume all costs are incurred this year and are treated as an R&D expense, Quisco's tax rate is 40 %, and the number of shares outstanding is unchanged. b. Suppose Quisco does not develop the product in-house but instead acquires the technology. What effect would the acquisition have on Quisco's EPS this year? (Note that acquisition expenses do not appear directly on the income statement. Assume the firm was acquired at the start of the year and has no revenues or expenses of its own, so that the…