What is the unlevered value of vandell

Assignment Help Accounting Basics

Reference no: EM132967334

Question: Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.9%. Assume that the risk-free rate of interest is 7% and the market risk premium is 8%. Both Vandell and Hastings face a 40% tax rate.

Hastings estimates that if it acquires Vandell, interest payments will be $1,500,000 per year for 3 years after which the current target capital structure of 30% debt will be maintained. Interest in the fourth year will be $1.468 million after which interest and the tax shield will grow at 4%. Synergies will cause the free cash flows to be $2.3 million, $2.7 million, $3.3 million, and then $3.98 million in Years 1 through 4, respectively, after which the free cash flows will grow at 4% rate.

1. What is the unlevered value of Vandell? Vandell's beta is 1.10. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2. Do not round intermediate calculations. Round your answer to two decimal places. $_________________

2. What is the value of its tax shields? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2. Do not round intermediate calculations. Round your answer to two decimal places. $________________

3. What is the per share value of Vandell to Hastings Corporation? Assume Vandell now has $8.43 million in debt. Do not round intermediate calculations. Round your answer to the nearest cent.

Reference no: EM132967334

Questions Cloud

Results of a descriptive single-case study : Discuss how the purpose, methodology, and results of a descriptive single-case study that examine the characteristics of medication errors made by student nursi

What percentages of your money must be invested : What percentages of your money must be invested in Padma Oil's stock to form a portfolio with a standard deviation of 12%? Show your work

Evaluate ways to sustain the viability of medicare : Evaluate ways to sustain the viability of Medicare. Examples for discussion can include:

Why to understand the current market for green products : Why to understand the current market for green products in Klang Valley, Malaysia? Please support with journal reference from year 2016-2021?

What is the unlevered value of vandell : What is the unlevered value of Vandell? Vandell's beta is 1.10. Enter your answer in dollars. For example, an answer of $1.2 million should be entered

Calculate total costs of the output : Closing inventory of 20 units was only 50% complete with respect to materials and conversion costs. Calculate total costs of the output

Introduce cloud computing into business operations : List two major benefits for an organization using cloud computing

Calculate the net present value and net benefit : Calculate the net present value, that is, the net benefit or net loss of the project, in present value terms. (Show answer correct to the nearer cent.)

How might such an investment product be structured : How might such an investment product be structured? Why might it be difficult to issue such a product in todays market environment

User Account

All Pages