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Happy Times, Inc., wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe's Party Supply. Happy Times currently has debt outstanding with a market value of $140 million and a YTM of 6 percent. The company's market capitalization is $380 million, and the required return on equity is 12 percent. Joe's currently has debt outstanding with a market value of $30.5 million. The EBIT for Joe's next year is projected to be $12.5 million. EBIT is expected to grow at 10 percent per year for the next five years before growth slows to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe's has 1.85 million shares outstanding and the tax rate for both companies is 38 percent. You may assume that the WACC of the two companies is the same. a. Based on these estimates, what is the maximum share price that Happy Times should be willing to pay for Joe's? Use the WACC Method. b. Calculate the Enterprise Value/EBITDA multiple based on your estimate of the value of the firm. If the current market benchmark for recent acquisition transactions for party stores is 6, is your maximum share price reasonable?
Which of the following is NOT a relevant cash flow and thus should NOT be reflected in the analysis of a capital budgeting project?
Calculate the return of share prices (rj) and market return (rm) (from market price index). Display the calculated returns along with the risk free rate of return (given in a separate excel file) in a table for two sub periods. Calculate and tabul..
Bennington Industrial Machines issued 136,000 zero coupon bonds five years ago. The bonds originally had 30 years to maturity with a yield to maturity of 6.6 percent. Interest rates have recently increased, and the bonds now have a yield to maturity ..
A stock that Melvin has just added to his portfolio is expected to pay its first dividend of $2.20 two years from now. The next year, the dividend will increase to $2.40, and at the end of the 4th year, the dividend will increase to $2.70. After the ..
Frank is an option speculator. He anticipates the Danish kroner to appreciate from its current level of $.19 to $.21. Currently, kroner call options are available with an exercise price of $.18 and a premium of $.02. Should Frank attempt to buy this ..
The various closing costs will be allocated between the parties in the customary way unless otherwise noted.
Assuming Mitsubishi holds negligible amount of cash and market securities, calculate its total assets turnover and ROA.
The Utah Mining Corporation is set to open a gold mine near Provo, Utah. According to the treasurer, Monty Goldstein, "This is a golden opportunity." The mine will cost $3, 500,000 to open and will have an economic life of 11 years. What is the IRR f..
Which of the following statements concerning pension portfolio investments is (are) correct?
Describe the concept of NPVGO, and how this can create measurable value. Explain the "Terminal Value".
You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows: Revenue (10000 visits) $416541 Wages and benefit $205597 Rent $4129 Depreciation $28555 Utilities $2495 Medical supplies $45344..
Suppose that the principal assigned to the senior, mezzanine, and equity tranches for the ABSs and ABS CDO in Figure 6.4 is 60%, 30%, and 10% instead of 75%, 20% and 5%. How are the results in Table 6.1 affected?
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