Compute the value of hughes

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Reference no: EM131415211

Compute the value of Hughes if the WACC of GM at its existing leverage ratio is used instead of the WACC computed from the comparison firms

In 1985, General Motors (GM) was evaluating the acquisition of Hughes Aircraft Corporation. Recognizing that the appropriate WACC for discounting the projected cash flows for Hughes was different from General Motors' WACC, GM assumed that Hughes was of approximately the same risk as Lockheed or Northrop, which had low-risk defense contracts and products that were similar to those of Hughes. Specifically, assume the Hamada model of debt interest tax shields and the inputs in the table at right.

Reference no: EM131415211

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