Find out the expected return on capital, Macroeconomics

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.

 

Posted Date: 3/21/2013 2:11:54 AM | Location : United States







Related Discussions:- Find out the expected return on capital, Assignment Help, Ask Question on Find out the expected return on capital, Get Answer, Expert's Help, Find out the expected return on capital Discussions

Write discussion on Find out the expected return on capital
Your posts are moderated
Related Questions
Suppose that you decide to leave your current job(with a salary of $60,000) to start your own business in a building (with a market value of $400,000) you already own. You pay $45,

Define the tools of Competitive market. Competitive market: The supply and demand model a. The demand curve b. The supply curve c. Factors which cause the demand cu

America can produce 100 shirts or 20 computers and China can produce 100 shirts or 10 computers. With trade, who exports shirts? Which country benefits from the trade?

Assume the residents of an economy spend all of their income on cauliflower, broccoli and carrots. In 2003 they buy100 heads of cauliflowers for Rs. 200; 50 bunch of broccoli f

Which of the following will decrease the nominal deficit? A. An increase in taxes. B. An increase in the debt. C. An increase in government expenditures. D. An increase in interest

HOW INCOME TERMS OF TRADE DIFFER WITH COMMODITY TERMS OF TRADE"

factor for long run trend of term of trade


What is Inherent Limitation?

Cost Reduction Positive measures to effect a lowering of costs include:  reducing national insurance contributions (an  ad valorem  tax on employing labor);