Find the formula to calculate hv value

Assignment Help Corporate Finance

Reference no: EM1343765

Brau Auto, a national autoparts chain, is considering purchasing a smaller chain, South Georgia Parts (SGP). Brau's analysts project that the merger will result in the following incremental free cash flows, tax shields, and horizon values:

Years 1 2 3 4
Free cash flow $1 $3 $3 $7
Unlevered horizon value 75
Tax shield 1 1 2 3
Horizon value of tax shield 32

Assume that all cash flows occur at the end of the year. SGP is currently financed with 30% debt at a rate of 10%. The acquisition would be made immediately, and if it is undertaken, SGP would retain its current $15 million of debt and issue enough new debt to continue at the 30% target level.

The interest rate would remain the same. SGP's pre-merger beta is 2.0, and its post-merger tax rate would be 34%. The risk-free rate is 8% and the market risk premium is 4%. What is the value of SGP to Brau?

Find the formula to calculate HV Value?

Reference no: EM1343765

Questions Cloud

Show how an increase in your companys accounts payable : Show how an increase in your company's accounts payable from one period to the next is a means to maintain high cash balances in your company's bank account.

Given expected price level policies for reaching potential : Given the expected price level, policies for reaching potential GDP will work best if the funds provide.

Find standard deviation : I found the expected rate of return for stock A & B, which is 8% and 10 percent respectively. I need to determine the standard deviation of both A and B as well.

Accounting issues of acquisitions : Mention and describe three accounting issues related to acquisitions. What role does the controller play in addressing these issues?

Find the formula to calculate hv value : What is the value of SGP to Brau and find the formula to calculate HV Value?

Cisco systems and successful acquisitions : Investigate the approach that Cisco Systems has used in its many successful acquisitions. What are some of the human resource practices that have made its acquisitions successful?

Explain why an industry in a perfectly competitive market : Explain why an industry in a perfectly competitive marketplace would choose to remain in business, if its profit is zero at equilibrium.

Determine the assets present value : The value of an asset is present value of the expected returns from asset during the holding period. An investment will provide a stream of returns during this period,

Project acquisition management : What are Key Performance Parameters (KPP) and why are they necessary to be stated in the acquisition process? What are the four componets of Net-Ready Key Performance Parameter (NR-KPP)?

User Account

All Pages