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M&A. For this and the next 3 questions: Teddy Corp is considering acquiring Daniels Company. Daniels has a capital structure consisting of $5 million (market value) in 11% bonds and $10 million (market value) of common stock. Currently, Daniels has a beta of 1.36. Teddy's beta is 1.02. Both firms have tax a rate of 40%. Teddy's debt ratio is 40%. The free cash flows estimated for Daniels are $3 million for each of the next 4 years and a horizon value of $10 million in Year 4. Interest tax savings are estimated to be $1 million for each of the next 4 years and a horizon value of $5 million in Year 4. Additionally, new debt would be issued to finance the acquisition. The new debt would have an interest rate of 8%. Currently, the risk-free rate is 6% and the market risk premium is 4%. Calculate the current WACC for the Daniels Company.
Calculate the value of the target firm's equity? There are no non-operating assets to consider. $17.11m $17.19 m $17.92m $22.11m $22.92m None of the above
A pure discount (or zero-coupon) government bond is issued today that promises to pay $10,000 in 5 years. If the current interest rate on similar bonds is 6%, what is the price of the bond? Recall that the compounding interval for bonds is 6 months.
You are willing to pay $15,625 now to purchase a perpetuity which will pay you and your heirs $1,250 each year, forever, starting at the end of this year. If your required rate of return does not change, how much would you be willing to pay if this w..
Consider the following project which costs $2,000 with a salvage value of zero in 4 years. The project will produce a new widget which will be sold for $135 and have variable costs of $95 per unit. The company has fixed costs of $3,000 and a required..
Brighton Corp. bought an oil rig exactly 6 years ago for $109,000,000. Brighton depreciates oil rigs straight line over 10 years assuming no salvage value. The rig was just sold to British Petroleum for $34,000,000. What Capital Gain/Loss will Bright..
What are companies registered with the Securities & Exchange Commission (SEC) required to include with their financial reports and what are SEC financials required to adhere to?
A U.S.-based multinational bank: Would not have to provide deposit insurance and meet reserve requirements on foreign currency deposits. Would have to provide deposit insurance and meet reserve requirements on foreign currency deposits. Would not hav..
Quitmeyer Electronics Incorporated manufactures the following six microcomputer peripheral devices: internal modems, external modems, graphics circuit boards, CD drives, hard disk drives, and memory expansion boards. Device Revenue per unit sold ($) ..
What is the traditional gold standard, how does it differ from our current monetary system, and how does it work to resolve trade imbalances? Give an example. What are the advantages to being on a gold standard and what are the drawbacks? What is t..
ABC had assets of $15 million last year; sales were $18 million; liabilities plus accruals that increased spontaneously with sales was 8% of assets; net income was $275,000 of which $120,000 was paid out in the form of dividends. What is ABC's capita..
Your company has spent $320,000 on research to develop a new computer game. The firm is planning to spend $52,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; The firm has a..
Big Bass Sound (BBS) is a thriving music business. You would like to understand the market risk of BBS and are looking to find its Beta of the Assets. BBS' Beta of Equity is 3.9, the beta of debt is 0.4, and the tax rate is 34%. BBS has 273 in debt o..
W.C. cycling had $63,000 of cash at year end 2011 and $14,000 in cash at year end 2012. the firm invested in property, plant, and equipment totaling $190,000. cash flow from financing activities totaled +$210,000. what was the cash flow from operatin..
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