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A. Given are the following data for year 1: Revenue = $45 million; Variable cost = $10 million; Fixed cost = $5 million; Depreciation = $1 million; Interest expense = $3 million; capital Investment = $12 million; change in working capital = $2 million. Corporate tax rate is 30%. Calculate the free cash flow to firm (FCFF) for year 1:
B. Firm A has a value of $500 million and Firm B has a value of $300 million. Firm A has 1000 shares outstanding, and Firm B has 1000 shares outstanding. Suppose that the merger would increase cash flows of the combined firm by $5 million in perpetuity. Assuming the cost of capital for the new firm is 10%.
If Firm A purchases Firm B for $330 million, how much do Firm B's shareholders gain from this merger?
c. Alpha Corporation has earnings before interest and tax (EBIT) per annum in perpetuity of $28,714. The tax rate is 30%. The firm is funded $50,000 of debt and $100,000 of equity. The cost of equity is 18% and the cost of debt is 6%.
Given the information above, what is the appropriate discount rate if earnings before interest and tax (EBIT) are used to calculate the value of the firm?
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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