With a new plant in China and interest in electric vehicles worldwide, Tesla is considering expanding its operations. The expansion will require $8 billion for two new factories which the corporation plans to raise by selling stock and bonds. Which of the core principles will come into play as investors decide whether or not to buy Tesla's stock and bonds?
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- Tesla, Inc., wants to expand its infrastucture into the Midwest. In order to establish an immediate an immediate presence in the area, the company is considering the aquisition of the privately held Rob Allen's Used Car Dealership. Tesla currently has debt outstanding with a market value of $325 million and a yield to maturity of 7.25%. The company's market capitalization is $450 million and the required return on equity is 10.25%. Rob's currently has debt outstanding with a market value of $73.5 million.The EBIT for Rob's next year is projected to be $20.35 million. EBIT is expected to grow at 9.75% per year for the next six years before slowing to 4.50% in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 8.5%, 15.20%, and 6.85% respectively. Rob's has 575,000 shares outstanding and the tax rate for both companies is 21%. Based on these estimates, what is the maximum share price that Tesla should be willing to pay…Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe's Party Supply. Happy Times currently has debt outstanding with a market value of $220 million and a YTM of 5.8 percent. The company's market capitalization is $460 million and the required return on equity is 12 percent. Joe's currently has debt outstanding with a market value of $34.5 million. The EBIT for Joe's next year is projected to be $14 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe's has 2.25 million shares outstanding and the tax rate for both companies is 23 percent. a. What is the maximum share price that Happy Times should be willing to pay for…Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $120 million and a YTM of 6.8 percent. The company’s market capitalization is $260 million and the required return on equity is 15 percent. Joe’s currently has debt outstanding with a market value of $25.5 million. The EBIT for Joe’s next year is projected to be $17 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe’s has 2.15 million shares outstanding and the tax rate for both companies is 25 percent. a.What is the maximum share price that Happy Times should be willing to pay for…
- Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $200 million and a YTM of 5.8 percent. The company’s market capitalization is $440 million and the required return on equity is 11 percent. Joe’s currently has debt outstanding with a market value of $33.5 million. The EBIT for Joe’s next year is projected to be $13 million. EBIT is expected to grow at 8 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 7 percent, 13 percent, and 6 percent, respectively. Joe’s has 2.15 million shares outstanding and the tax rate for both companies is 21 percent. a. What is the maximum share price that Happy Times should be willing to pay for…Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $200 million and a YTM of 5.8 percent. The company’s market capitalization is $440 million and the required return on equity is 11 percent. Joe’s currently has debt outstanding with a market value of $33.5 million. The EBIT for Joe’s next year is projected to be $13 million. EBIT is expected to grow at 8 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 7 percent, 13 percent, and 6 percent, respectively. Joe’s has 2.15 million shares outstanding and the tax rate for both companies is 21 percent. a.What is the maximum share price that Happy Times should be willing to pay for…The company wants to take a $500.0 mil loan to rebuild its position and expand its line of business to heavy equipment. Should the company take the loan or seek other forms of investment? notes -Business overseas- 40% of company revenues -Domestic market- 60% of company revenues -Increase in competition -The company has over the years relied mainly on issuing long-term bonds to finance its capital projects. -As of today, the firm has 50.0 million shares of common stock outstanding. Ratio Analysis 2021 Est. 2020 2019 Industry Average Liquidity Ratios Current Ratio (times) 2.34 3.22 3.68 4.2 Quick Ratio (times) 0.91 1.24 1.79 2.1 Asset Management Ratios Average sales/day 10.96 8.22 7.81 9 Inventory Turnover Ratio (times) 4.43 3.74 5.06 9 Days Sales Outstanding (days) 38.32 45.62 40.34 36 Fixed Assets Turnover…
- There 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?Your employer, a mid-sized human resources management company, is considering expansion into related fields, including the acquisition of Temp Force Company, an employment agency that supplies word processor operators and computer programmers to businesses with temporary heavy workloads. Your employer is also considering the purchase of Biggerstaff & McDonald (B&M), a privately held company owned by two friends, each with 5 million shares of stock. B&M currently has free cash flow of $24 million, which is expected to grow at a constant rate of 5%. B&M’s financial statements report short-term investments of $100 million, debt of $200 million, and preferred stock of $50 million. B&M’s weighted average cost of capital (WACC) is 11%. Answer the following questions. Describe briefly the legal rights and privileges of common stockholders. What is free cash flow (FCF)? What is the weighted average cost of capital? What is the free cash flow valuation model? Use a pie…Your employer, a midsized human resources management company, is considering expansion into related fields, including the acquisition of Temp Force Company, an employment agency that supplies word processor operators and computer programmers to businesses with temporarily heavy workloads. Your employer is also considering the purchase of Biggerstaff & McDonald (B&M), a privately held company owned by two friends, each with 5 million shares of stock. B&M currently has free cash flow of $24 million, which is expected to grow at a constant rate of 5%. B&M’s financial statements report short-term investments of $100 million, debt of $200 million, and preferred stock of $50 million. B&M’s weighted average cost of capital (WACC) is 11%. Use a pie chart to illustrate the sources that comprise a hypothetical company’s total value. Using another pie chart, show the claims on a company’s value. How is equity a residual claim? Suppose the free cash flow at Time 1 is…
- Your employer, a midsized human resources management company, is considering expansion into related fields, including the purchase of Biggerstaff & McDonand (B&M), a privately held company owned by two friends, each with 5 million shares of stock. B&M currently has free cash flow of $24 million, which is expected to grow at a constant rate of 5%. B&M’s financial statements report short-term investments of $100 million, debt of $200 million, and preferred stock of $50 million. B&M’s weighted average cost of capital (WACC) is 11%. Use B&M’s data and the free cash flow valuation model to answer the following questions: What is its estimated intrinsic value of equity? What is its estimated intrinsic stock price per share?Your employer, a midsized human resources management company, is considering expansion into related fields, including the purchase of Biggerstaff & McDonand (B&M), a privately held company owned by two friends, each with 5 million shares of stock. B&M currently has free cash flow of $24 million, which is expected to grow at a constant rate of 5%. B&M’s financial statements report short-term investments of $100 million, debt of $200 million, and preferred stock of $50 million. B&M’s weighted average cost of capital (WACC) is 11%. Use B&M’s data and the free cash flow valuation model to answer the following questions: What is the estimated value of operations? What is the estimated total corporate value? (this is the entity value.) What is its estimated intrinsic value of equity? What is its estimated intrinsic stock price per share?T Ltd is a pioneer in the Indian steel industry and wants to make a global presence by acquisition of a foreign company. It has identified another steel company in Europe which is five times its size. T Ltd is keen to acquire this company as the acquisition can make it the third largest steel manufacturer in the world. But it will need to borrow a huge amount of debt in order to fund its acquisition. You are the CFO of T Ltd and need to answer the following questions: (a) Write in detail what you understand by a Leveraged Buy Out? (b) Describe any 3 characteristics of a good LBO candidate