Determining the cost of capital of kubrick company

Assignment Help Advanced Statistics

Reference no: EM13115191

Kubrick Company decides to buy Hitchcock Company. Both firms have the same characteristics of Walton Company(revenues of $1000, operating margin of 15%, a tax rate of 40%, investment rate of 8%, growth rate of 18%, and 5 years supernormal growth, and zero growth thereafter), except Kubrick Company has a beta of 1.2 and Hitchcock Co, has a beta of 1.4. Both firms have 30% debt and a cost of debt of 8%. Because of the nature of the synergies anticipated in the acquitistion, the combined firm is expected to have a beta of 1.1.

a.) If the risk-free rate is 6% and the equity risk premium is 5%, calculate the cost of capital for the two firms and the combined firm.

b.) Assuming the value drivers remain constant(and revenues are simply combined), what would be the value of the combined company?

Reference no: EM13115191

Questions Cloud

Investment in associate-equity method : On January 1, 2008, Jonsey Corporation purchased 30% of the common stock outstanding of Karsen Corporation for $200,000. During 2008, Karsen Corporation reported net income of $80,000 and paid cash dividends of $40,000.

Descriptive statistics-graphic displays-salt tasee indices : Obtain descriptive statistics and graphic displays for these salt taste indices. Do the indices appear to be normally distributed? Why or why not?

Explain marketers use segmentation bases, : Explain Marketers use segmentation bases, or variables, which are characteristics of individuals, groups, or organizations, to divide a total market into segments.

How much of the excess reactant is used in the reaction : What mass of Fe will form when 63.0g of CO reacts with 145g of Fe2O3 according to the following equation? 3CO+Fe2O3->2Fe+3CO2.

Determining the cost of capital of kubrick company : If the risk-free rate is 6% and the equity risk premium is 5%, calculate the cost of capital for the two firms and the combined firm. Assuming the value drivers remain constant(and revenues are simply combined), what would be the value of the comb..

Determining pert and cpm : Assume you are going to manage a large construction project involving many subcontractors. Why use PERT or CPM to plan the project rather than just logically scheduling the subcontractors?

Explain positive side of high degree of interconnection : A small, undocumented change resulted in the collapse of the VA system, largely due to the high interrelationship between its applications. What is the positive side of this high degree of interconnection, and how does this benefit patients?

Calculate the molar concentration of uncomplexed zinc ion : Calculate the molar concentration of uncomplexed Zn2+ in a solution that contains 0.20 mole of Zn(NH3)42+ per liter and 0.0116 M NH3 at equilibrium.

What happen if company fail to meet guaranteed mileage : What should the guaranteed mileage be if the tire company desires that no more than 2 percent of the tires will fail to meet the guaranteed mileage?

User Account

All Pages