What Ingram pre-merger WACC

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Reference no: EM132801538

Question - Simon Corporation is considering the acquisition of Ingram Company. Ingram has a capital structure consisting of $7.5 million (market value) of 11% bonds and $15 million (market value) of common stock.

Ingram's pre-merger beta is 1.36. Simon's beta is 1.02, and both it and Ingram face a 40% tax rate.

Simon's capital structure is 40% debt and 60% equity. The free cash flows from Ingram are estimated to be $4.5 million for each of the next 4 years and a horizon value of $15 million in Year 4. Tax savings are estimated to be $1.5 million for each of the next 4 years and a horizon value of $7.5 million in Year 4. New debt would be issued to finance the acquisition and retire the old debt, and this new debt would have an interest rate of 8%. Currently, the risk-free rate is 6.0% and the market risk premium is 4.0%.

What Ingram's pre-merger WACC?

Reference no: EM132801538

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