The following information refers to Questions No. 13 through 15:The financial manager of Apple Co. is evaluating Banana Co. as a possibleacquisition. Banana Co. is expected to produce annual after-tax operatingcash flows of PI,500,000. Apple Co. will assume P1,000,000 of BananaCo.'s long-term liabilities. Apple Co.'s weighted average cost of capital is12% and Banana Co.'s weighted average cost of capital is 15%. Theacquisition will be evaluated as a perpetuity. Apple Co.'s common stock istrading at P25 per share with 1,000,000 shares outstanding and a P/E ratio of10. Banana Co.'s stock is trading at P15 per share with 600,000 sharesoutstanding and a P/E ratio of 15.Based on this information, the estimated market value of the target-company is nearestP 9,000,000.b.13.a.P10,000,000.P11,000,000.P11,500,000.с.d.

Answered: Image /qna-images/answer/8312dfd1-f9a1-4d8f-8f49-0e0e9af4e50c.jpg

Answered: The following information refers to…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Marcos has current annual sales of $52600 net fixed assets of $38900, and total asset s of 56300. Tje firm is currently operating at a 79percent capacity. What is the capital intensity ratio at full capacity?
Spentworth Industries Corp. is considering an acquisition of Keedsler Motors Co., and estimates that acquiring Keedsler will result in incremental after-tax net cash flows in years 1–3 of $9 million, $13.5 million, and $16.2 million, respectively. After the first three years, the incremental cash flows contributed by the Keedsler acquisition are expected to grow at a constant rate of 3% per year. Spentworth’s current beta is 1.60, but its post-merger beta is expected to be 2.08. The risk-free rate is 4.5%, and the market risk premium is 6.60%. Based on this information, complete the following table by selecting the appropriate values. (Note: Round your intermediate calculations to two decimal places.) Value Post-merger cost of equity Projected value of the cash flows at the end of three years The value of Keedsler Motors Co.’s contribution to Spentworth Industries Corp.
Bulldogs Inc. is considering whether to pursue a restricted or relaxed current asset investment policy. The firm’s annual sales are P500,000; its fixed assets are P200,000; debt and equity are each 50% of total assets. EBIT is P40,000, the interest rate on the firm’s debt is 10%, and the firm’s tax rate is 25%. Current assets will be 10% of sales with a restricted policy. Under a relaxed policy, current assets will be 20% of sales. What is the difference in the projected ROEs between the restricted and relaxed policies? 5.40% 3.57% 4.00% 3.20%
1. In its most recent year, HiFlyer Plc’s return on capital was 50% on the reported invested capital of $2 billion. An analyst decides to treat Research and Development expenditure as capital expenditure and estimates the value of the research asset to be $1 billion. The Research and Development expenditure was $300 million and the amortisation of the research asset was $200 million. There is no tax. a. Re-estimate the return on capital of HiFlyer.
Involves the purchase of a lumber mill operation located in Nova Scotia. You have estimated the initial investment as $1,000,000 and the annual pre-tax cash flow over the next 10 years as $200,000 at which point the operation will be obsolete. If GBEI decides to invest in the lumber mill operation, it will be financed using the same proportions of debt and equity that GWEI currently uses. You have collected information on a publicly-traded lumber products company whose primary line of business is similar to GBEI’s lumber mill operation – this has led you to recommend a discount rate of 11.27% for this investment. Assume straight line depreciation. 1. Calculate the NPV, Payback Period, and Profitability Index of the lumber mill operation.
Softek Corporation forms a separate legal entity, Startek, to develop new technology. The entity is funded by $2,000,000 in outside equity and $26,000,000 in debt. Softek guarantees Startek's debt. The entity is expected to generate the following cash flows at the end of two years: Cash Flow Probability $14,520,000 0.50 42,350,000 0.20 60,500,000 0.30 A discount rate of 10 percent is appropriate. Required Assume qualitative analysis of Startek's VIE status is inconclusive. Quantitatively analyze whether Startek is a variable interest entity. Instructions: Use negative signs with your answers, when appropriate. • Enter $ answers in millions ($11,000,000 equals $11 million). • Enter Probability answers using decimals. Expected Present Cash Flow Value Probability Expected Investment Residual Expected Fair Value Returns S PV Gains $ $ Expected Losses
Reynolds Construction's current value of operations is $750 million based on the free cash flow valuation model. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, and $300 million of total debt. What is the best estimate for the firm's value of equity, in millions?.
Hub and Less Inc. needs to maintain 5 percent of next-year's sales in net working capital. The firm is considering a 5-year project which will increase sales from their current level of $110,000 to $146,000, $150,000, $159,000, $163,000, and $157,000 for Years 1 to 5 of the project, respectively. What amount should be included in the project analysis cash flows for net working capital in the second year (Year 2) of the project?
Hastings Corporation is interested in acquiring Vandell Corporation. Hastings Corporation estimates that if it acquires Vandell Corporation, synergies will cause Vandell’s free cash flows to be $2.3 million, $2.9 million, $3.4 million, and $3.79 million at Years 1 through 4, respectively, after which the free cash flows will grow at a constant 5% rate. Hastings plans to assume Vandell’s $10.29 million in debt (which has a 7.4% interest rate) and raise additional debt financing at the time of the acquisition. Hastings estimates that interest payments will be $1.6 million each year for Years 1, 2, and 3. After Year 3, a target capital structure of 30% debt will be maintained. Interest at Year 4 will be $1.431 million, after which the interest and the tax shield will grow at 5%. Vandell currently has 1.5 million shares outstanding and a target capital structure consisting of 30% debt; its current beta is 1.10 (i.e., based on its target capital structure). Vandell and Hastings each have a…
Please do not give solution in image format thanku

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS