Merger valuation-shares outstanding-target capital structure

Assignment Help Financial Management
Reference no: EM13947184

Merger Valuation

Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7%. Assume that the risk-free rate of interest is 6% and the market risk premium is 5%. Both Vandell and Hastings face a 35% tax rate.

Hastings estimates that if it acquires Vandell, interest payments will be $1,500,000 per year for 3 years after which the current target capital structure of 30% debt will be maintained. Interest in the fourth year will be $1.424 million after which interest and the tax shield will grow at 5%. Synergies will cause the free cash flows to be $2.3 million, $3.0 million, $3.4 million, and then $3.99 million in Years 1 through 4, respectively, after which the free cash flows will grow at a 5% rate. What is the unlevered value of Vandell?

1) Vandell's beta is 1.60. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. Do not round intermediate calculations. (in millions)

2) What is the value of its tax shields? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. Do not round intermediate calculations. (in millions)

3) What is the per share value of Vandell to Hastings Corporation? Assume Vandell now has $11.57 million in debt. Round your answer to the nearest cent. Do not round intermediate calculations. (per share)

Reference no: EM13947184

Questions Cloud

What is the net asset value per share : The Hirt & Block mutual fund has assets of $147 million, liabilities of $7 million and 7 million shares outstanding. What is the net asset value per share?
The tax treatment regarding the sale of existing assets : The tax treatment regarding the sale of existing assets that are sold for their book value results in: a. recaptured depreciation taxed as ordinary income b. no tax benefit or liability c. an ordinary tax benefit d. a capital gain tax liability and r..
The bid for each share should range between per share : Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7%. The bid for each share should range between $ ___..
Low risk exposure through international diversification : An investor who wishes to achieve high returns and low risk exposure through international diversification would probably look for
Merger valuation-shares outstanding-target capital structure : Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7%. Assume that the risk-free rate of interest is 6% ..
Unsophisticated capital budgeting techniques : Unsophisticated capital budgeting techniques do not: a. examine the size of the initial outlay b. take into account unconventional cash flow patters c. explicitly consider the time value of money d. use net profits as a measure of return
What is the value of the unlevered firm and tax shield : 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 1.25. Vandell's debt interest rate is 7.9%. What is the value of the unle..
What is the bonds coupon rate : Cranston Industries just issued $1,000 par 30-year bonds. The bonds sold for $1,107.20 and pay interest semi-annually. Investors require a rate of 7.75% on the bonds. What is the bonds' coupon rate?
What are arithmetic and geometric average returns for stock : What are the arithmetic and geometric average returns for a stock with annual returns of 21 percent, 9 percent, –2 percent, and 13 percent? List the arithmetic answer first.

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

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