Company HH is a regional hardware chain which is considering acquiring LL. The boss of the company asked to place a value on target. Interest is included in existing debt of $55 million @9% in LL and new debt will be issued after some time to help the expansion with respect to finance with in the new L division. If it is acquired, then the Company LL will face 40% of tax. Beta will be 1.3 for LL’s stock with risk free rate 7% and market risk premium is 4%. The acquisition will not change the LL company’s structure it will remain at 20% debt. Person Z estimates that after 2020 the company will grow at 6%. 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 determine: The steps using compressed APV (Adjusted present value ) approach in valuing merger.

Question

Want to see the full answer?

Answer 1

Question

Chapter 22, Problem 3MC

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.

Interest is included in existing debt of $55 million @9% in LL and new debt will be issued after some time to help the expansion with respect to finance with in the new L division. If it is acquired, then the Company LL will face 40% of tax.

Beta will be 1.3 for LL’s stock with risk free rate 7% and market risk premium is 4%.

The acquisition will not change the LL company’s structure it will remain at 20% debt.

Person Z estimates that after 2020 the company will grow at 6%.

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 determine: The steps using compressed APV (Adjusted present value) approach in valuing merger.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

What are the steps in valuing a merger using thecompressed APV approach?

What is merger waves?

Can a JV be converted to merger and consolidation? how would you account for that?

Answer 2

Question

Chapter 22, Problem 3MC

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.

Interest is included in existing debt of $55 million @9% in LL and new debt will be issued after some time to help the expansion with respect to finance with in the new L division. If it is acquired, then the Company LL will face 40% of tax.

Beta will be 1.3 for LL’s stock with risk free rate 7% and market risk premium is 4%.

The acquisition will not change the LL company’s structure it will remain at 20% debt.

Person Z estimates that after 2020 the company will grow at 6%.

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 determine: The steps using compressed APV (Adjusted present value) approach in valuing merger.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 3

Question

Chapter 22, Problem 3MC

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.

Interest is included in existing debt of $55 million @9% in LL and new debt will be issued after some time to help the expansion with respect to finance with in the new L division. If it is acquired, then the Company LL will face 40% of tax.

Beta will be 1.3 for LL’s stock with risk free rate 7% and market risk premium is 4%.

The acquisition will not change the LL company’s structure it will remain at 20% debt.

Person Z estimates that after 2020 the company will grow at 6%.

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 determine: The steps using compressed APV (Adjusted present value) approach in valuing merger.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

Chapter 22, Problem 3MC

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.

Interest is included in existing debt of $55 million @9% in LL and new debt will be issued after some time to help the expansion with respect to finance with in the new L division. If it is acquired, then the Company LL will face 40% of tax.

Beta will be 1.3 for LL’s stock with risk free rate 7% and market risk premium is 4%.

The acquisition will not change the LL company’s structure it will remain at 20% debt.

Person Z estimates that after 2020 the company will grow at 6%.

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 determine: The steps using compressed APV (Adjusted present value) approach in valuing merger.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 5

Chapter 22, Problem 3MC

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.

Interest is included in existing debt of $55 million @9% in LL and new debt will be issued after some time to help the expansion with respect to finance with in the new L division. If it is acquired, then the Company LL will face 40% of tax.

Beta will be 1.3 for LL’s stock with risk free rate 7% and market risk premium is 4%.

The acquisition will not change the LL company’s structure it will remain at 20% debt.

Person Z estimates that after 2020 the company will grow at 6%.

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 determine: The steps using compressed APV (Adjusted present value) approach in valuing merger.

Answer 6

Chapter 22, Problem 3MC

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.

Interest is included in existing debt of $55 million @9% in LL and new debt will be issued after some time to help the expansion with respect to finance with in the new L division. If it is acquired, then the Company LL will face 40% of tax.

Beta will be 1.3 for LL’s stock with risk free rate 7% and market risk premium is 4%.

The acquisition will not change the LL company’s structure it will remain at 20% debt.

Person Z estimates that after 2020 the company will grow at 6%.

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 determine: The steps using compressed APV (Adjusted present value) approach in valuing merger.

Answer 7

Chapter 22, Problem 3MC

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.

Interest is included in existing debt of $55 million @9% in LL and new debt will be issued after some time to help the expansion with respect to finance with in the new L division. If it is acquired, then the Company LL will face 40% of tax.

Beta will be 1.3 for LL’s stock with risk free rate 7% and market risk premium is 4%.

The acquisition will not change the LL company’s structure it will remain at 20% debt.

Person Z estimates that after 2020 the company will grow at 6%.

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 determine: The steps using compressed APV (Adjusted present value) approach in valuing merger.

Answer 8

Expert Solution & Answer

Answer 9

Expert Solution & Answer

Answer 10

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 11

Ch. 22 - Prob. 1Q Ch. 22 - Prob. 2Q Ch. 22 - Prob. 3Q Ch. 22 - Prob. 4Q Ch. 22 - Prob. 5Q Ch. 22 - Prob. 1P Ch. 22 - Prob. 2P Ch. 22 - Prob. 1MC Ch. 22 - Prob. 3MC Ch. 22 - Prob. 5MC

Solution Summary: The author explains how the company HH is considering acquiring LL. The boss asked to place a value on target.

Want to see the full answer?

Chapter 22 Solutions