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The following represents the target's accounting data you have estimated for the years 2024-2025. Assume that all of these numbers are end-of-year data (i.e. today is January 1st, 2024 and the revenues, etc. are at the end of 2024, 2025). In addition, you have the following information for the target and the acquiring firm. Revenues 2024 $150,000,000 2025 $160,000,000 Cost of Goods Sold Depreciation A&G $40,000,000 $60,000,000 $12,000,000 $20,000,000 $8,000,000 $15,000,000 $4,000,000 $5,000,000 Retained Earnings $6,000,000 Target Acquiring Firm Interest B-2.0 Taxes=40% Cap Structure: Debt-20% # of Shares Outstanding 4,000,000 Current Price per Share = $30 Est. Future Growth Rate=6% $7,000,000 Cap Structure: Debt-65% Taxes = 30% Other Information T-bond rate 5% Mkt Risk Premium = 10% 0 (15 points) Calculate the appropriate cashflows. (10 points) Calculate the appropriate discount rate for the acquiring firm based on the value of the target. (5 points) Why is this rate so high? (15 points) Calculate the target firm value. (5 points) What would be a reasonable offer (ie. $/share) for the target. Activate Windows I

The following represents the target's accounting data you have estimated for the years 2024-2025. Assume that all of these numbers are end-of-year data (i.e. today is January 1st, 2024 and the revenues, etc. are at the end of 2024, 2025). In addition, you have the following information for the target and the acquiring firm. Revenues 2024 $150,000,000 2025 $160,000,000 Cost of Goods Sold Depreciation A&G $40,000,000 $60,000,000 $12,000,000 $20,000,000 $8,000,000 $15,000,000 $4,000,000 $5,000,000 Retained Earnings $6,000,000 Target Acquiring Firm Interest B-2.0 Taxes=40% Cap Structure: Debt-20% # of Shares Outstanding 4,000,000 Current Price per Share = $30 Est. Future Growth Rate=6% $7,000,000 Cap Structure: Debt-65% Taxes = 30% Other Information T-bond rate 5% Mkt Risk Premium = 10% 0 (15 points) Calculate the appropriate cashflows. (10 points) Calculate the appropriate discount rate for the acquiring firm based on the value of the target. (5 points) Why is this rate so high? (15 points) Calculate the target firm value. (5 points) What would be a reasonable offer (ie. $/share) for the target. Activate Windows I

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The following represents the target's accounting data you have estimated for the years 2024-2025. Assume that all of these numbers are end-of-year data (i.e. today is January 1st, 2024 and the revenues, etc. are at the end of 2024, 2025). In addition, you have the following information for the target and the acquiring firm. Revenues 2024 $150,000,000 2025 $160,000,000 Cost of Goods Sold Depreciation A&G $40,000,000 $60,000,000 $12,000,000 $20,000,000 $8,000,000 $15,000,000 $4,000,000 $5,000,000 Retained Earnings $6,000,000 Target Acquiring Firm Interest B-2.0 Taxes=40% Cap Structure: Debt-20% # of Shares Outstanding 4,000,000 Current Price per Share = $30 Est. Future Growth Rate=6% $7,000,000 Cap Structure: Debt-65% Taxes = 30% Other Information T-bond rate 5% Mkt Risk Premium = 10% 0 (15 points) Calculate the appropriate cashflows. (10 points) Calculate the appropriate discount rate for the acquiring firm based on the value of the target. (5 points) Why is this rate so high? (15 points) Calculate the target firm value. (5 points) What would be a reasonable offer (ie. $/share) for the target. Activate Windows I
Transcribed Image Text:The following represents the target's accounting data you have estimated for the years 2024-2025. Assume that all of these numbers are end-of-year data (i.e. today is January 1st, 2024 and the revenues, etc. are at the end of 2024, 2025). In addition, you have the following information for the target and the acquiring firm. Revenues 2024 $150,000,000 2025 $160,000,000 Cost of Goods Sold Depreciation A&G $40,000,000 $60,000,000 $12,000,000 $20,000,000 $8,000,000 $15,000,000 $4,000,000 $5,000,000 Retained Earnings $6,000,000 Target Acquiring Firm Interest B-2.0 Taxes=40% Cap Structure: Debt-20% # of Shares Outstanding 4,000,000 Current Price per Share = $30 Est. Future Growth Rate=6% $7,000,000 Cap Structure: Debt-65% Taxes = 30% Other Information T-bond rate 5% Mkt Risk Premium = 10% 0 (15 points) Calculate the appropriate cashflows. (10 points) Calculate the appropriate discount rate for the acquiring firm based on the value of the target. (5 points) Why is this rate so high? (15 points) Calculate the target firm value. (5 points) What would be a reasonable offer (ie. $/share) for the target. Activate Windows I
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