User Account

All Pages

About the merger valuation

Assignment Help Financial Management
Reference no: EM13937135

Merger Valuation

Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.8%. Assume that the risk-free rate of interest is 7% and the market risk premium is 8%. Both Vandell and Hastings face a 35% tax rate.

Hastings estimates that if it acquires Vandell, interest payments will be $1,500,000 per year for 3 years after which the current target capital structure of 30% debt will be maintained. Interest in the fourth year will be $1.461 million after which interest and the tax shield will grow at 5%. Synergies will cause the free cash flows to be $2.6 million, $3.1 million, $3.4 million, and then $3.99 million in Years 1 through 4, respectively, after which the free cash flows will grow at a 5% rate. What is the unlevered value of Vandell? Vandell's beta is 1.10. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. Do not round intermediate calculations.

$    million

What is the value of its tax shields? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. Do not round intermediate calculations.

$    million

What is the per share value of Vandell to Hastings Corporation? Assume Vandell now has $9.17 million in debt. Round your answer to the nearest cent. Do not round intermediate calculations.

$    per share

Reference no: EM13937135

Questions Cloud

What is the projects average accounting return : You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $11.6 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected..
Do the quotes above facilitate currency arbitrage : Assume that one euro (EUR) currently costs NOK 8.00 in the spot-market and NOK 7.6500 in the 6- month’s forward market. The current, one-year interest rate on NOK-denominated, government issued money-market securities is 3.25 percent, while the one-y..
Should they finance it with the bank or with sears : Karen and Wayne need to buy a new refrigerator because theirs just broke. unfortunately their savings account is depleted and they will need to borrow money in order to buy a new one. the bank offers them a personal loan at 21 % (APR) and sears offer..
What would you advise shareholders : A company had an IPO priced at $20. If after the first day of public trading stock is selling at $26 per share, what would you advise shareholders to do?
About the merger valuation : Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.8%.  What is the per share value of Vandell to Hast..
Merger valuation with change in capital structure : Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7%. Assume that the risk-free rate of interest is 5% ..
About the merger bid : Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.8%. Vandell's free cash flow (FCF0) is $2 million p..
What was net working capital-net operating working capitials : Last year Rattner Robotics had $5 million of operating income. Its depreciation expense was $1 million, its interest expense was $1 million, and its corporate tax rate was 40%. What was the company's net income? What was its net operating working cap..
About the stock prices future movements : The common stock of the C.A.L.L Corporation has been trading in a narrow range around $50 per share for the past month, and you believe it is going to stay in that range for the next three month. You do not know whether it will group or down, however..

Reviews

Write a Review

Financial Management Questions & Answers

  Estimating cost of common stock from reinvested earnings

The text identifies three methods for estimating the cost of common stock from reinvested earnings (not newly issued stock): CAPM method, DCF method, and Bond-yield-plus-risk-premium method.

  Bonds are currently yielding return

NikkiG’s Corporation’s 10-year bonds are currently yielding a return of 6.25 percent. The expected inflation premium is 1.20 percent annually and the real risk-free rate is expected to be 2.50 percent annually over the next ten years. The liquidity r..

  Interest compounded annually

What would be your annual return (interest compounded annually) if you paid $10,000 for a stock that paid a $400 annual dividend, and sold the stock 12 years later for $22,000?

  Quoted share price for closed-end fund-share are outstanding

The Argentina Fund has $410 million in assets and sells at a 7.1 percent discount to NAV. If the quoted share price for this closed-end fund is $17.03, how many shares are outstanding?

  Different capital structures

We have explored different capital structures. It is noted that initially, leverage can be the least expensive form of capital. However, if potential lenders feel a firm is overly leveraged, they may charge a punitive rate, or refuse to lend all toge..

  The total asset turnover ratio

You are given the following financial data for Company A: Cash = $6,000; inventories = $1,000; accounts receivable = $700; other current assets = $500; long-term assets = $1,000; accounts payable = $800; other current liabilities = $4000; net income ..

  Information about rat race home security

Use the following information about Rat Race Home Security, Inc. Based on the data above, what will be the resulting percentage change in earnings per share of Rat Race Home Security, Inc. if they expect operating profit to change -1.5 percent?

  What home insurance coverage amount would you recommend

Michelle and Ken Dunn, both in their mid-20s, have been married for 4 years and have two preschool-age children. Ken has an accounting degree and is employed as a cost accountant at an annual salary of $62,000. They’re now renting a duplex but wish t..

  Net fixed asset calculated from information provided

Net working capital is $12,700, current assets are $38,200, equity is $53,400, and long-term debt is $11,600. How is the net fixed asset calculated from the information provided?

  Impact on eps if new shares are issued to fund the centre

Brown needs to raise $500,000 to construct the new amusement centre. Assuming the company can issue new shares at the current market price, what is the impact on EPS if new shares are issued to fund the centre?

  What must be the growth rate they expect of the firm

Eastern Electric currently pays a dividend of about $1.65 per share and sells for $30 a share. If investors' required rate of return is 10%, what must be the growth rate they expect of the firm?

  Describe what a qualified mortgage is

Describe what a qualified mortgage' is and explain the elements of the ability to repay rule.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd