When an acquirer assesses a potential target, the price the acquirer is willing to pay should be based on the value of: The target firm’s total corporate value (debt and equity) The target firm’s equity The target firm’s debt Consider the following scenario: Ziffy Corp. is considering an acquisition of Keedsler Motors Co., and estimates that acquiring Keedsler will result in incremental after-tax net cash flows in years 1–3 of $14.00 million, $21.00 million, and $25.20 million, respectively. After the first three years, the incremental cash flows contributed by the Keedsler acquisition are expected to grow at a constant rate of 6% per year. Ziffy’s current beta is 1.60, but its post-merger beta is expected to be 2.08. The risk-free rate is 5%, and the market risk premium is 7.10%. Based on this information, complete the following table by selecting the appropriate values (Note: Do not round intermediate calculations, but round your answers to two decimal places): Value Post-merger cost of equity ? Projected value of the cash flows at the end of three years ? The value of Keedsler Motors Co.’s contribution to Ziffy Corp. ? Keedsler Motors Co. has 6 million shares of common stock outstanding. What is the largest tender offer Ziffy Corp. should make on each of Keedsler Motors Co.’s shares? $25.65 $20.52 $30.78 $30.79
When an acquirer assesses a potential target, the price the acquirer is willing to pay should be based on the value of:
The target firm’s total corporate value (debt and equity)
The target firm’s equity
The target firm’s debt
Consider the following scenario:
Ziffy Corp. is considering an acquisition of Keedsler Motors Co., and estimates that acquiring Keedsler will result in incremental after-tax net cash flows in years 1–3 of $14.00 million, $21.00 million, and $25.20 million, respectively.
After the first three years, the incremental cash flows contributed by the Keedsler acquisition are expected to grow at a constant rate of 6% per year. Ziffy’s current beta is 1.60, but its post-merger beta is expected to be 2.08. The risk-free rate is 5%, and the market risk premium is 7.10%.
Based on this information, complete the following table by selecting the appropriate values (Note: Do not round intermediate calculations, but round your answers to two decimal places):
|
Value |
|
|---|---|
| Post-merger |
? |
| Projected value of the cash flows at the end of three years | ? |
| The value of Keedsler Motors Co.’s contribution to Ziffy Corp. | ? |
Keedsler Motors Co. has 6 million shares of common stock outstanding. What is the largest tender offer Ziffy Corp. should make on each of Keedsler Motors Co.’s shares?
$25.65
$20.52
$30.78
$30.79
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