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Volworld Communications Inc., a large telecommunications company, is evaluating the possible acquisition of Bulldog Cable Company (BCC), a regional cable company. Volworld's analysts project the following post-merger data for BCC (in thousandsof dollars), with a year end of December 31): 2012 2013 2014 2015 2016 2017 Net Sales $450 $518 $555 $600 $643 Selling & Admin Expenses 45 53 60 68 73 Interest 40 45 47 52 54 Total Net Operating Capital $800 850 930 1,005 1,075 1,150 Tax rate after the merger: 35% COGS as a percent of sales: 65% BCC's pre-merger beta (b): 1.4 Risk-free rate (rRF): 6% Market Risk premium (rPM): 4% Terminal growth rate of FCF (g): 7% If the acquisition is made, it will occur on January 1, 2013. All cash flows shown in the income statements are assumed to occur at the end of the year. BCC currently has a capital structure of 40% debt, which icosts 10%, but over the next 4 years Volworld would increase that to 50%, and the target capital structure would be reached by the start of 2017. BCC, if independent, would pay taxes at 20%, but its income would be taxed at 35% if it were consolidated. BCC's current market-determined beta (b) is 1.4. The Cost of Goods Sold is expected to be 65% of sales. *2nd, calculate (rsU), based on BCC's pre-merger Capital structure.
A capital budget lists the projects and investments that a company plans to undertake during the coming year. When sales of a new product displace sales of an existing product, the situation is often referred to as cannibalization. Because value is l..
In this discussion, we will be working with the variety of financial analysis tools available to us. Let's start with the DuPont Identity introduced in Chapter 2 of the text. For your initial post, locate the financial statements for two firms in one..
Company Z carries a portfolio consisting of two investments, A and B. Its portfolio mix is onethird for Investment A which has an expected return of 18 percent and two-thirds for Investment B with an expected return of 9 percent. What is the expected..
Petersen Company has a capital budget of $1.1 million. The company wants to maintain a target capital structure which is 35% debt and 65% equity. The company forecasts that its net income this year will be $800,000. If the company follows a residual ..
LA Diversified Inc. recently paid its annual dividend ($3.00). Dividends have consistently grown at a rate of 3.80%. The stock has a beta of 0.88. The current risk-free rate is 2.40% and the market risk premium (RM - RF) is 8.50%. Assuming that CAPM ..
Analyze the company's liquidity, leverage, and profitability from your calculations, and lastly, analyze the investor reactions to the news.
Address the regulations around safeguarding your financial information to prevent fraudulent activity.
It is important to understand how the major competitors and how they performed financially relative to Under Armour.
A company currently pays a dividend of $3.5 per share (D0 = $3.5). It is estimated that the company's dividend will grow at a rate of 17% per year for the next 2 years, then at a constant rate of 8% thereafter. The company's stock has a beta of 1.5, ..
Namath Corporation's stock is expected to pay a dividend of $1.25 at the end of the year. The dividend is expected to grow by 20% for each of the following two years, and then at a constant rate of 8% per year, thereafter. The stock has a required re..
Analyzing coverage? ratios-Calculate the times interest earned ratio for each of the years for which you have data.
what are the NPVs of the two? projects? Why do IRR and NPV rank the two projects? differently?
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