What is the npv of the proposed acquisition

Assignment Help Financial Management

Reference no: EM131980978

Blazer Inc. is thinking of acquiring Laker Company. Blazer expects Laker's NOPAT to be $9 million the first year, with no net investment in operating capital and no interest expense. For the second year, Laker is expected to have NOPAT of $25 million and interest expense of $5 million. Also, in the second year only, Laker will need $10 million of net new investment in operating capital. Laker's marginal tax rate is 40%. After the second year, the free cash flows and tax shields will grow at a constant rate of 4%. Blazer has determined that Laker's cost of equity is 17.5%, and Laker currently has no debt outstanding. Assume all cash flows occur at the end of the year. Blazer must pay $45 million to acquire Laker. What is the NPV of the proposed acquisition?

Reference no: EM131980978

Questions Cloud

Estimated floor price of the convertible at the end of year : What is the estimated floor price of the convertible at the end of Year 3?

Computer-based order entry system : Project Evaluaton. Your firm is contemplating the purchase of a new $520,000 computer-based order entry system.

What is minimum variance hedge ratio : What is the minimum variance hedge ratio? What is optimal number of futures contracts required if daily settlement of futures contracts were taken into account?

Company to reduce energy losses in the equipment : There are two manufacturing processes that can be utilized by a company to reduce energy losses in the equipment.

What is the npv of the proposed acquisition : Blazer must pay $45 million to acquire Laker. What is the NPV of the proposed acquisition?

Leasing arrangement to finance some manufacturing tools : Kohlers Inc. is considering a leasing arrangement to finance some manufacturing tools that it needs for the next three years.

What factors contribute to the business risk of company : What factors contribute to the business risk of a company? What is financial risk? How do the various sources of risk affect the optimal capital structure?

Determining market-based and negotiated transfer prices : Determining Market-Based and Negotiated Transfer Prices Carreker, Inc., has a number of divisions, including the Alamosa Division, producer of surgical blades,

Planning to save for retirement : You are planning to save for retirement. You would like to retire 25 years from today and you currently have $100,000 set aside.

User Account

All Pages