Reference no: EM13941425
Merger Valuation with Change in Capital Structure
Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.20 (given its target capital structure). Vandell's debt interest rate is 7.3%. Assume that the risk-free rate of interest is 6% and the market risk premium is 7%. 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. Suppose Hastings will increase Vandell's level of debt at the end of Year 3 to $26.7 million so that the target capital structure will be 45% debt. Assume that with this higher level of debt the interest rate would be 8.0%, and assume that interest payments in Year 4 are based on the new debt level from the end of Year 3 and new interest rate. Again, free cash flows and tax shields are projected to grow at 5% after Year 4.
A) What is the value of the unlevered firm? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. Do not round intermediate calculations.
$ ________ million
B) What is the value of the tax shield? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. Do not round intermediate calculations.
$ ________million
C) What is the maximum price that Hastings would bid for Vandell now? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. Do not round intermediate calculations.
$ __________ million
|
Discuss specific symptoms children with adhd
: Introduction: Write one to two pages in which you provide a summary of ADHD and discuss specific symptoms children with ADHD might demonstrate in the classroom and during play activities
|
|
Costs to register and issue securities
: Direct and Indirect combination costs, Costs to register and issue securities.
|
|
Beta of stock
: A stock has an expected return of 12.2 percent, the risk-free rate is 4 percent, and the market risk premium is 10 percent. What must the beta of this stock be?
|
|
Use a variables of type double for the calculations
: Write a program that takes a value x as input and outputs this sum for n taken to be each of the values 1 to 10, 50, and 100
|
|
What is the value of the tax shield
: Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.20. What is the value of the unlevered firm? What is the value of the t..
|
|
Different combinations of the two goods
: Consider a consumer who each week purchases two goods, X and Y. The following table shows three different combinations of the two goods that lie on three of her indifference curves-A,B, and C.
|
|
Capital markets-how does leverage affect cost of equity
: In perfect capital markets, how does leverage affect the cost of equity? a. In perfect capital markets, levered equity's cost increases with the debt-equity ratio. b. In perfect capital markets, leverage increases the cost of levered equity by the co..
|
|
Combine the four loop problems into one program
: Combine the four loop problems into one program with four distinct methods (the data is in the attached document). For this problem you will write methods, two value returning methods and two void methods.
|
|
What is the concept of push down accounting
: What is the concept of push down accounting and how it would impact the consolidation process?
|