Free operating cash flow method-market multiple method

Assignment Help Financial Management

Reference no: EM131338185

Ron Paul Pharmaceuticals is interested in acquiring Old Drugs Ltd. The projected cash flow statement for Old Drugs after the merger is shown below, and these cash flows are estimated to grow at a constant rate of 6 percent per year: Net revenues $305.6 Operating expenses $244.8 Depreciation $16.0 Earnings before interest and taxes (EBIT) $44.8 Interest $12.3 Earnings before taxes $32.5 Taxes $11.4 Net profit $21.1 Estimated retentions $19.2 The current capital structure of Old Drugs is 60 percent debt, which would be maintained after the merger. Old Drugs currently has $570.5 million of outstanding debt with an interest rate of 10 percent. Both Ron Paul and Old Drugs face a 35 percent tax rate. The beta of Old Drugs is predicted to increase to 1.4 after the merger. The risk-free rate of interest is 4 percent, and the market risk premium is 5 percent. The mean market multiple of recent pharmaceutical mergers is 10.265 times the EBITDA. Estimate the equity value of Old Drugs Ltd. using the: a. Free operating cash flow method b. Free cash flow to equityholders method c. Market multiple method

Reference no: EM131338185

Questions Cloud

How does machine language differ from java : What would the following statements, when used in a Java program, display on the screen?

Japanese managers believe about subordinates : Using GLOBE study results and other supporting data, determine what Japanese managers believe about their subordinates. How are these beliefs similar to those of the U.S. and European Managers? How are these beliefs different?

Will it be in main memory or auxiliary memory : After you use a text editor to write a program, will it be in main memory or auxiliary memory?

Describe the effect that obesity has had on you personally : Obesity in America is considered an epidemic. There are many contributing factors to obesity (both childhood and adult), such as biological, environmental, social, or economic factors. Review the information on obesity on pages 419 to 421 in the t..

Free operating cash flow method-market multiple method : Ron Paul Pharmaceuticals is interested in acquiring Old Drugs Ltd. The projected cash flow statement for Old Drugs after the merger is shown below, and these cash flows are estimated to grow at a constant rate of 6 percent per year: Estimate the equi..

Developing an organization strategic marketing plan : For the final Portfolio Project you will submit a written paper developing an organization's strategic marketing plan that you could share with the organization's board of directors.

Discuss and evaluate the federal government policy : LAW5230 Taxation Law Assignment. Company tax rate - Discuss and critically evaluate the Federal Government's policy of lowering the company tax rate to 25%. You should discuss potential advantages and disadvantages and any alternatives

Write a summary about the given assignments : write a summary about the given assignments.

Which of the following may be used as variable names in java : Can a Java program have two different variables with the names a Variable and a variable?

User Account

All Pages