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Volunteer Pizza, a regional pizza chain, is considering purchasing a smaller chain, Eastern Pizza, which is currently financed with 20 percent debt at a cost of 8%. Volunteer's analysts project that the merger will result in incremental free cash flows and interest tax savings of $2 million in Year 1, $4 million in Year 2, $5 million in Year 3, and $117 million in Year 4. (The Year 4 cash flow includes a horizon value of $107 million.) The acquisition would be made immediately, if it is undertaken. Eastern's pre-merger beta is estimated to be 2.0, and its post-merger tax rate would be 34 percent. The risk-free rate is 8 percent, and the market risk premium is 4 percent. Calculate the appropriate rate for discounting the free cash flows and the interest tax savings. Note that this rate is rEU. Hint: first, calculate cost of levered equity (rEL) using CAPM. Then calculate rEU as wDrD + wErEL.
Computation of no odd days to pay its suppliesrs and the cost of goods sold is equivalent to 65% of sales
swallowit is a small australian pharmaceutical company. it is not fully integrated with the dividend imputation
Highland, Inc. has total assets of $16,200, net working capital of $3,900, owner's equity of $8,500, and long-term debt of $6,000. What is the value of the current assets?
FIN2000, Financial Institutions and Markets: - Case Studies in Financial Crises, “Financial Market Essentials”,(2011) McGraw and Hill (this is available on the portal under assessments).
discuss the effect on stock market investor confidence should bank customers individuals and businesses alike lose
1.use the attached examples and complete the answer for both using both examples.2.you are considering buying stock a
Kelly Corporation five year bonds yield 7.50% and 5-year T-bonds yield 5.80%. The real risk-free rate is r* = 2.5%, the default risk premium for Kelly's bonds is DRP = 0.40 percent,
Jones surgicenter uses 90,000 bags of IV solution annually. The optimal safety stock (which is on hand initially) is 1,000 bags. Each bags costs the center $1.50, inventory carrying costs are 20 percent, and the cost of placing an order with it su..
Big Tom's stock is not expected to pay cash dividends for three years. In years 4, 5, and 6 the cash dividend will be $6 a year, and year seven to infinity the cash dividend will be $8 a year.
Using the risk-adjusted discount rate approach, the company's weighted average cost of capital is applied to projects with:
your assignment is to select a publicly held company and to analyze its capital structure applying the theories and
assume all rates are annualized with semi-annual compounding.question 1. 100 par of a 0.5-year 8-coupon bond has a
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