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Happy Times, Inc., wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $210 million and a YTM of 8 percent. The company’s market capitalization is $310 million, and the required return on equity is 13 percent. Joe’s currently has debt outstanding with a market value of $28 million. The EBIT for Joe’s next year is projected to be $15 million. EBIT is expected to grow at 7 percent per year for the next five years before slowing to 5 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 6 percent, 12 percent, and 5 percent, respectively. Joe’s has 1.95 million shares outstanding and the tax rate for both companies is 35 percent. a. What is the maximum share price that Happy Times should be willing to pay for Joe’s? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Maximum share price $ After examining your analysis, the CFO of Happy Times is uncomfortable using the perpetual growth rate in cash flows. Instead, she feels that the terminal value should be estimated using the EV/EBITDA multiple. The appropriate EV/EBITDA multiple is 7. b. What is your new estimate of the maximum share price for the purchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Maximum share price $
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.58 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. What is the projec..
Using a simulation technique calculate Pr(NPV> $250,000) and Pr(NPV
On completion of her introductory finance? course, Marla Lee was so pleased with the amount of useful and interesting knowledge she gained that she convinced her? parents, who were wealthy alums of the university she was? attending, to create an endo..
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Keller Cosmetics maintains an operating profit margin of 8.20% and a sales-to-assets ratio of 3.30. It has assets of $540,000 and equity of $340,000. Interest payments are $34,000 and the tax rate is 35%. What is the return on assets? What is the ret..
We are evaluating a project that costs $1,120,000, has a ten-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 64,000 units per year. Calculate the accounting b..
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