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- Baldock Corp. has a market capitalization of $4000m, a total enterprise value of $8000m, an equity beta of 1.1 and a debt beta of 0.1. Royston Corp. has a market capitalization of $3000m, a total enterprise value of $9000m, an equity beta of 1.1, and a debt beta of 0.05. What would be the asset beta of the new conglomerate if Baldock and Royston were to merge? 0.6 0.51 0.49 0.3There is a firm, which we have identified to buy. It has $100 million, $30 and $70 m assets, equity and debt respectively. It also has $40 m of cash. We want to buy a majority interest in the firm by using a lot of debt and as little equity as possible on our part. If we assume that there will be a 20% premium increase once we start bidding for the firm, how much should we borrow, if we can use the cash of the target itself to fund our acquisition?Corporation A is deciding on an acquisition. Corporation A would buy all shares of corporation B, for a total of 500,000 shares of B. Currently, corporation B is expected to pay a constant dividend forever of $12 per share. The market price of B shares reflects these expectations, and the required rate of return is 4%. A can buy B shares at their current market price, and management expects to be able to exploit synergies between the two corporations and increase revenues. Thus, according to A’s management, if the acquisition takes place the dividend per share for next year is expected to be $12, but dividends are then expected to grow forever at a rate of 3% per year. The required rate of return on stock B would stay unchanged at 4%. What is the NPV of the acquisition? .
- Samsung, which had a market value of equity $ 36000 million and $4000 million outstanding debt and a beta of 1.6, announced that it was acquiring Nokia, which had a market value of equity $ 16000 million and $600 million outstanding debt and a beta of $ 1.3 and the corporate tax rate was 40%. Estimate beta unlevered for Samsung. Estimate beta unlevered for Nokia. Estimate beta unlevered for the combined firm. Estimate beta levered for the combined firm assuming the entire acquisition was financed with equity. Estimate beta levered for the combined firm assuming the entire acquisition was financed with debt. Estimate beta levered for the combined firm assuming that Samsung borrowed $10,000 million debt to buy Nokia and funded the rest with new equity.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 1.50 (given its target capital structure). Vandell's debt interest rate is 7%. Assume that the risk - free rate of interest is 5% and the market risk premium is 7%. Both Vandell and Hastings face a 30% tax rate.Hastings Corporation estimates that if it acquires Vandell Corporation, synergies will cause Vandells free cash flows to be $2.3 million, $3.1 million, $3.3 million, and $ 3.82 million at Years 1 through 4, respectively, after which the free cash flows will grow at a constant 4% rate. Hastings plans to assume Vandells $11.02 million in debt and raise additional debt financing at the time of the acquisition. Hastings estimates that interest payments will be $1.6 million each year for Years 1, 2, and 3. Suppose Hastings will increase Vandells level of debt at Year 3 to $27.8 million so that the target…A Corp. and B Company will be merging. Independently, A has forecasted annual earnings of P400,000 and overall return of 16%. On the other hand, B had dividends of P480,000 last year, an overall return of 15% and a payout ratio of 80%. Once combined, they will have a total equity value of P7,300,000. How much is the value of synergy between the two entities?
- JJJCorporation is to be sold off by its shareholders. It currently has market values of debt and of equity at $20,000,000 and $25,000,000 respectively. The effective cost of debt is 12% while the cost of equity is 18%. Several analysts determined three potential acquirers who may be able to synergize with JJJ. The following returns from JJJ depending on the acquirer are as follows:" Acquirer Expected Firm Return G 20% H 24% I 18% Based on the above and assuming that liabilities will be retained by the entity, what is the highest selling price that the shareholders can get from the sale of JJJ?RTE Telecom Inc., which is considering the acquisition of Lucky Coro, estimates that acquiring Lucky will result in an incremental value for the firm. The analysts involved in the deal have collected the following information from the projected financial statements of the target company: Data Collected (in millions of dollars) Year 1 Year 2 Year 3 EBIT $120 $14.4 $18.0 Interest expense 505560 Debt 29.7 35.1 37.8 Total net operating capital 109.2 111.3 1134) Lucky Corp is a pubicly traded company, and its market- determined pre-merger beta is 1.20 You also have the following information about the company and the projected statements: Lucky currently has a $12.00 million market value of equity and S 7:80 million in debt. The risk-free rate is 3.5%, there is a 5.60% market risk premium, and the Capital Asset Pricing Model produces a pre merger required rate of return on equity rs of 10.22% Lucky's cost of debt is 5.50% al a laxtale of 35% The projections assume that the company will have…Penn Corp. is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total aftertax annual cash flows by $3 million indefinitely. The current market value of Teller is $49 million, and that of Penn is $85 million. The appropriate discount rate for the incremental cash flows is 10 percent. Penn is trying to decide whether it should offer 40 percent of its stock or $66 million in cash to Teller's shareholders. a. What is the cost of each alternative? (Enter your answers in dollars, not millions of dollars, e.g., 1,234,567.) Cash cost $66,000,000 Equity cost b. What is the NPV of each alternative? (Enter your answers in dollars, not millions of dollars, e.g., 1,234,567.) NPV cash NPV stock
- A large consumer products company is looking to quickly expand beyond itscore business by forming a joint venture with a fast growing. but much smaller firm. TheNPV of the joint venture is expected to be S10OM and each company will own a 50% stakein it. The annual volatility of the venture is 25% and the risk-free rate is 1%. The largerfirm is interested in an option to purchase the smaller firm's stake in the venture for $65million after one year. Assume continuous compounding and discounting of cash flows. a. Using a two period model with six months per period, what is the maximum pricethe larger company should be ready to pay for the option to acquire the smaller firm's50% stake in the joint venture? b. Revisit part a, but with four months per period. How does the option price change? c. Using the Black-Scholes-Merton model, value the option. d. Given the results in parts a - c, which provides the most precise estimate? Why? e. Which is the best methodology to value the option if…Cybernauts, Ltd., is a new firm that wishes to determine an appropriate capital structure. It can issue 16 percent debt or 15 percent preferred stock. The total capitalization of the company will be $5 million, and common stock can be sold at $20 per share. The company is expected to have a 50 percent tax rate (federal plus state). Four possible capital structures being considered are as follows: PLAN DEBT PREFERRED EQUITY 1 0% 0% 100% 2 30 0 70 3 50 0 50 4 50 20 30 a. Construct an EBIT - EPS chart for the four plans. (EBIT is expected to be $1 million.) Be sure to identify the relevant indifference points and determine the horizontal - axis intercepts. b. Which plan is best? Why?Hastings Corporation is interested in acquiring Visscher Corporation. Assume that the riskfreerate of interest is 4%, and the market risk premium is 5%. Hastings estimates that if it acquires Visscher, the year-end dividendwill remain at $1.99 a share, but synergies will enable the dividend to grow at a constantrate of 7% a year (instead of the current 5%). Hastings also plans to increase the debt ratioof what would be its Visscher subsidiary; the effect of this would be to raise Visscher’s betato 1.05. What is the per-share value of Visscher to Hastings Corporation?