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Kellog wants to expand its cereal business by acquiring Major foods company. Kellog currently has debt outstanding with a market value of $150 million and a YTM of 7 percent. The company’s market capitalization is $390 million, and the required return on equity is 12 percent. Major foods has debt outstanding with a market value of $32 million. The EBIT for Major Foods is projected to be $14 million. EBIT is expected to grow at 11 percent per year for the next five years before slowing to 2% in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 10 percent, 15 percent, and 9 percent, respectively. Major Foods has 2 million shares outstanding, and the tax rate for both companies is 40 percent. a. What is the maximum share price do you think Kellog should to pay for Major foods stock. b. Would you recommend that Kellog purchase Major foods? Why?
Therefore, according to Congressman Snowball, a way to accomplish this would be to provide large welfare payments to poorly educated Americans. - Does this eliminate moral hazard?
If you have to liquidate your position in 1 month, what would a $1 million investment be worth in either instrument? - Which instrument should you purchase?
Do you need to consider start-up costs as part of the plan?
Why is an industry analysis of stocks important? List some sources of information about firms and their industry.
What is the payback period of each project? (Round your answers to 1 decimal place.)
how expensive a home mortgage can you afford?
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,132,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $270,000 per year.
Ironore Limited is an iron mining company whose mines are slowly being depleted (i.e., little by little, the amount of iron ore available in the mine is declining as the ore is extracted each year). What is your estimate of Ironore’s Price/Earnings r..
For each of the following risk exposures, explain why the amount of private market insurance coverage may be significantly limited through contractual provision
Typically investors and corporate managers require greater return when risk increases. This is called being: risk-averse. indifferent to risk. risk-seeking. investment grade.
how many more shares must you buy to be assured of earning a seat on the board?
Using the financial statements and other information that you have for MPR, and assuming a 5% perpetual growth rate in the FCFE, value the equity using the FCFE method.
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