FINANCIAL MANAGEMENT(LL)-TEXT
16th Edition
ISBN: 9781337902618
Author: Brigham
Publisher: CENGAGE L
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Chapter 22, Problem 1MC
Summary Introduction
Case summary: Company HH is a regional hardware chain which is considering acquiring LL. The boss of the company asked to place a value on target. There are 20 million shares @$12 per share with LL. Bet is 1.25 for LL’s stock with risk free rate 5.5% and market risk premium is 4%. 20% of capital structure of LL is financed with debt with 8% interest rate. Federal plus state tax rate is 25% and will remain same even after acquisition. The management of the company HH is asking various questions about mergers and also asking to perform merger analysis based on the given details of Company LL.
To compute: The values of unlevered horizon, current unlevered operating value, horizon value of interest tax savings, current value of interest tax saving. Also, state that the values will be same or different if other firm evaluates the LL’s value.
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Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe's Party Supply. Happy Times currently has debt outstanding with a market value of $220 million and a YTM of 5.8 percent. The company's market capitalization is $460 million and the required return on equity is 12 percent. Joe's currently has debt outstanding with a market value of $34.5 million. The EBIT for Joe's next year is projected to be $14 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe's has 2.25 million shares outstanding and the tax rate for both companies is 23 percent. a. What is the maximum share price that Happy Times should be willing to pay for…
Chapter 22 Solutions
FINANCIAL MANAGEMENT(LL)-TEXT
Ch. 22 - Prob. 1QCh. 22 - Prob. 2QCh. 22 - Prob. 3QCh. 22 - Prob. 4QCh. 22 - Prob. 5QCh. 22 - Prob. 1PCh. 22 - Prob. 2PCh. 22 - Prob. 3PCh. 22 - Hasting Corporation is interested in acquiring...Ch. 22 - Prob. 5P
Ch. 22 - Prob. 6PCh. 22 - Prob. 7SPCh. 22 - Prob. 1MCCh. 22 - Hager’s Home Repair Company, a regional hardware...Ch. 22 - Hager’s Home Repair Company, a regional hardware...Ch. 22 - Hager’s Home Repair Company, a regional hardware...Ch. 22 - Prob. 5MCCh. 22 - Prob. 6MCCh. 22 - Prob. 7MCCh. 22 - Prob. 8MCCh. 22 - Prob. 9MCCh. 22 - Prob. 10MCCh. 22 - Prob. 11MCCh. 22 - Prob. 12MC
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