Valuation of merger target

Assignment Help Financial Management
Reference no: EM131897388

Valuation of Merger Target

Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.20 (given its target capital structure). Vandell has $9.86 million in debt that trades at par and pays an 7% interest rate. Vandell’s free cash flow (FCF0) is $2 million per year and is expected to grow at a constant rate of 4% a year. Vandell pays a 30% combined federal and state tax rate. The risk-free rate of interest is 4% and the market risk premium is 5%. Hastings’ first step is to estimate the current intrinsic value of Vandell.

What are Vandell’s cost of equity and weighted average cost of capital? Round your answer to two decimal places. Do not round intermediate calculations.

Cost of equity:  %

WACC:  %

What is Vandell's intrinsic value of operations? (Hint: Use the free cash flow corporate valuation model.) Round your answer to two decimal places. Do not round intermediate calculations.

$   million

What is the current intrinsic value of Vandell's stock? Round your answer to the nearest cent. Do not round intermediate calculations.

$   /share

Reference no: EM131897388

Questions Cloud

Discuss the theory of motivation in detail : Select 1 content theory of Motivation. Discuss the theory in detail and include the pro's and con's of this theory. Make sure any cited text is referenced.
What is the author''s purpose for creating source : Alcorn, Ted. "Antibiotic use in Livestock Production in the USA." The Lancet. Infectious Diseases, vol. 12, no. 4, 2012, pp. 273. Accessed 1 Mar. 2018.
How will changes impact the way organizations function : Not only is the U.S. experiencing a demographic shift, but the world is also changing, and national borders are becoming blurred. This increased connectivity.
Develop the speaker character : Analyze how the raven in Edgar Allen Poe's "The Raven" helps to develop the speaker's character. Be sure to use specific details from the poem to support your
Valuation of merger target : Hastings Corporation is interested in acquiring Vandell Corporation. What are Vandell’s cost of equity and weighted average cost of capital?
Embrace nontraditional practices : How will this affect diseases in the United States in the future? How as medical professionals (nurses) can we embrace these nontraditional practices?
Canada criminal code : Polygamy is illegal under Canada's Criminal Code. A woman who follows a religion that endorses polygamy applies to the clerk of her municipality
What event prompted the usa to join the world war i : Name two houses of the British Parliament. What event prompted the United States of America (USA) to join the First World War in 1917?
What is the primary key of project : What is the primary key of PROJECT? Describe two modification anomalies from which PROJECT suffers. In what normal form is PROJECT

Reviews

Write a Review

Financial Management Questions & Answers

  Real terms versus mxn

Last year, the USD depreciated 2% in real terms versus MXN. Inflation in the US was 2% and inflation in Mexico was 7%. In nominal terms, the USD approximately

  What is their yield to maturity

Dylon Corp.'s bonds currently sell for $1,180 and have a par value of $1,000. They pay a $60 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100. What is their yield to maturity (YTM)?

  Disregard tax shield from amortization of flotation costs

Suppose a company will issue new 25-year debt with a par value of $1,000 and a coupon rate of 8%, paid annually. The tax rate is 40%. If the flotation cost is 3% of the issue proceeds, then what is the after-tax cost of debt? Disregard the tax shield..

  Ratio of price to expected earnings for river cruises

What is the ratio of price to expected earnings for River Cruises before it borrows the $220,000? What is the ratio after it borrows?

  What is the expected return on a portfolio

A stock has a beta of 1.14 and an expected return of 10.5 percent. A risk free asset currently early 2.4 percent. What is the expected return on a portfolio that is equally invested in the two assets? If a portfolio of the two assets has a beta of .9..

  Given a floater-inverse floater tranche with total principal

Given a floater/inverse floater tranche with a total principal amount of $25,000,000, 7% interest, and even allotments to the floater class and the inverse floater classes what is the maximum interest rate cap on the floater class?

  About the retirement account

Starting today, George is going to contribute $300 on the first of each month to his retirement account. His employer will contribute an additional 50% of the amount George contributes. If both George and his employer continue to do this and he can e..

  What is the current value per share at a discount rate

What is the current value per share at a discount rate of 14 percent?

  What is the composition of the dow jones industrial average

What is the composition of the Dow Jones Industrial Average?

  Square box is considering two independent projects

The Square Box is considering two independent projects, both of which have an initial cost of $18,000. The cash inflows of Project A are $3,000, $7,000, and $10,000 over the next three years, respectively.

  What is most you should pay for it today

Your broker offers to sell you some shares of Bahnsen & Co common stock that paid a dividend of $2 yesterday. You expect the dividend to grow at the rate of 5% per year for the next 3 years, and if you buy the stock, you plan to hold it for 3 years a..

  Future free cash flows

You are working on the valuation for an upcoming IPO. The company that wants to sell its stock expects the following future free cash flows (FCF, in millions of dollars): -7 in year 1, 7 in year 2, 15 in year 3, and cash flows are expected to grow st..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd