Bid for each share of vandell common stock in an acquisition

Assignment Help Financial Management

Reference no: EM13921271

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 7.3%. Assume that the risk-free rate of interest is 4% and the market risk premium is 5%. Both Vandell and Hastings face a 35% tax rate. Vandell's free cash flow (FCF0) is $2 million per year and is expected to grow at a constant rate of 5% a year; its beta is 1.45. Hastings estimates that if it acquires Vandell, interest payments will be $1,600,000 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 $1.415 million after which interest and the tax shield will grow at 5%. Synergies will cause the free cash flows to be $2.3 million, $2.7 million, $3.3 million, and then $3.60 million, after which the free cash flows will grow at a 5% rate. Assume Vandell now has $11.27 million in debt. Indicate the range of possible prices that Hastings could bid for each share of Vandell common stock in an acquisition. Round your answers to the nearest cent. Do not round intermediate calculations. The bid for each share should range between $____ per share and $______ per share.

Reference no: EM13921271

Questions Cloud

Problem regarding the long history of success : The department has never sold its services outside, but because of its long history of success, larger manufacturers of agricultural products have approached Ideal to hire its R&D department for special projects.

What are the stages of applying the scientific method : Describe from a scientific perspective why some people might be skeptical of this technique. Answer anticipated questions such as: Are potential objectives related to cultural issues (i.e. Western medicine vs. Eastern)? What scientific methods used ..

What type of exposure could the cfo of h&m in the u.s. : What type of exposure could the CFO of H&M in the U.S. be subjected to since H&M is based in Sweden and the financial statements are prepared according to IFRS?

Why the board of trustees might want to continue the policy : The board of trustees of the University of Medford has been asked to reconsider this policy. Provide an economic argument to explain why the board of trustees might want to continue this policy.

Bid for each share of vandell common stock in an acquisition : 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 7.3%. Assume that the risk-free rate of interest is 4..

Production of sub-assemblies : Develop an MRP for Space Age Furniture Company using the information in the case including the production of sub-assemblies in lot sizes of 1,000.

Discuss the potential incentive effects of the given policy : Payments under some retirement plans are based on the average earnings in the last few years of employment. Discuss the potential incentive effects of this policy.

Calculate how liquid a firm is and whether it can pay bills : Execute an investigation into whether the firm's managers are generating adequate operating profits on the company's assets. Calculate how liquid a firm is and whether it can pay its bills

Long-term government bonds are normally distributed : Suppose the returns on long-term government bonds are normally distributed. Assume long-term government bonds have a mean return of 6.7 percent and a standard deviation of 10 percent. What is the probability that your return on these bonds will be le..

User Account

All Pages