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Find the net cash flows to columbia shareholders

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Question 1: Columbia Home Care Inc. is considering a merger with HCA Home Care Inc. HCAis a publicly traded company, and its current beta is 1.30. HCA has been barely pro?table and had paid an average of only 20 percent in taxes during the last several years. In addition, it uses little debt, having a debt ratio of just 25 percent. If the acquisition were made, Columbia would operate HCA as a separate, wholly owned subsidiary. Columbia would pay taxes on a consolidated basis, and the tax rate would therefore increase to 35 percent. Columbia also would increase the debt capitalization in the HCA subsidiary to 40 percent of assets, which would increase its beta to 1.50. Columbia estimates that HCA, ii acquired, would produce the following net cash flows to Columbia's shareholders (in millions of dollars)

Reference no: EM132579974

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