Find out the expected return on capital, Macroeconomics

Assignment Help:

Butthole Industries is buying out Avengers, Inc.  Butthole and Avengers both have market capitalizations equal to their fair value or the present value of their net cash flows.  Butthole generates $45M per year in net cash flows but has no growth.  Avengers is expected to generate $25M in net cash flows next year. Also, grow at 15% per year after.  The return on capital of both companies over the past years:

Return on Capital

Butthole

Avengers

Year 1

-20.5%

45.8%

Year 2

41.1%

-5.8%

Year 3

10.5%

20.9%

Note that the relevant discount rate for each firm is the "average" return on capital.

A.  If past history is a good indicator of future performance, what are the expected return on capital and standard deviation of return on capital for the merged entity?

B.  In which of the two major dimensions this merger could possibly help Butthole: boosting the return or reducing the risk?  Prove your point quantitatively.

 


Related Discussions:- Find out the expected return on capital

Total public debt outstanding, What was the total public debt outstanding o...

What was the total public debt outstanding on the same day in 2000? What was it in 2008?

Money multiplier, what is money multiplier? what is role , importance, adva...

what is money multiplier? what is role , importance, advantages , disadvantages , limitations and examples of money multiplier?

Open-market operations to influence, In your answer, discuss the Federal Re...

In your answer, discuss the Federal Reserve's use of open-market operations to influence the money supply and the respective consequences of such actions. Include a discussion of t

Free trade help the u.s. economy, Why and how does free trade help the U.S....

Why and how does free trade help the U.S. economy? How might free trade hurt the U.S. economy?

The three-year period of inflation annually, The GDP deflator in Economy la...

The GDP deflator in Economy land is 200 on January 1, 2010. The deflator rises to 242 by January 1, 2012, and to 266.2 by January 1, 2013. a. What is the annual rate of inflati

Testing the hypothesis, An effort to reduce energy costs, a major universit...

An effort to reduce energy costs, a major university has installed more efficient lights as well as automatic sensors that turn the lights off when no movement is present in a room

About assignment, i have assignment due within less than 24 hours if i sub...

i have assignment due within less than 24 hours if i submit assignment can i get it back before 24 hours?

Taxation, what are the purposes of taxation?

what are the purposes of taxation?

Mba, Consider the following: The city council has just approved the constru...

Consider the following: The city council has just approved the construction of a water park in your town. You are responsible for studying the impact of the new water park on the l

Mankiw, Using the Mundell-Fleming model, describe how an increase in a coun...

Using the Mundell-Fleming model, describe how an increase in a country’s risk premium on the world interest rate can result in a higher level of real income. Under what circumstanc

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd