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ABC Corporation is considering the acquisition of XYZ, Inc. XYZ, Inc has a capital structure consisting of $5 million (market value) of 11% bonds and $10 million (market value) of common stock. XYZ’s pre-merger beta is 1.36. ABC’s beta is 1.02, and both it and XYZ’s face a 40% tax rate. ABC's capital structure is 40% debt and 60% equity. The free cash flows from XYZ are estimated to be $3.0 million for each of the next 4 years and a horizon value of $10.0 million in Year 4. Tax savings are estimated to be $1 million for each of the next 4 years and a horizon value of $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 is the post merger value of operations? Note: You must 1st solve for unlevered value of the operation and then the value of the interest tax shield.
Tulia Dairy pays a $2.50 cash dividend and earns $5 per share.- What is the effective rate of increase in the dividends for Tulia as a result of this action?
How much would you have to invest today to receive $12,000 in six years at 12%. Your aunt offers you a choice of $100,000 in 10 years or, $45,000 today. If money is discounted at eight percent, which should you choose, show work? Cousin Bertha invest..
AFN equation Broussard Skateboard's sales are expected to increase by 15% from $8.2 million in 2013 to $9.43 million in 2014. Its assets totaled $3 million at the end of 2013. Use the AFN equation to forecast Broussard's additional funds needed for t..
Suppose the Japanese yen exchange rate is ¥89 5 $1, and the British pound exchange rate is £1 5 $1.62. What is the cross-rate in terms of yen per pound?
Which of the following factors is not taken into consideration when determining markup on a municipal securities transaction?
Discuss a punishment goal of the criminal law system in relation to the business world.
Suppose two factors are identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR.
At the end of each year, for 20 years, I deposit $1000 dollars into an account. The effective annual interest rate for this account (called account 1) is 5%. At the end of each year, i take the interest I am paid from this account and invest it into ..
The par value of the bond is $1,000. If the going annual interest rate is 7.8%, what is the value of the bond?
If you require a 14 percent rate of return, what is the present value of these cash flows?
now assume you are in a perfect market with only corporate taxes added. cde corp. is all equity financed with 5000
A large pension fund is considering your money management firm as a candidate to manage the international portion of its overall portfolio of securities. The international component currently stands at $100 million. In two pages discuss currency risk..
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