The merger will result in incremental net cash flows

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Reference no: EM131296664

Southern Dental Care is considering purchasing a smaller dental clinic, named John Dental Practice. Analysts of Southern Dental Care project that the merger will result in incremental net cash flows of $1 million in Year 1, $5 million in Year 2, $10 million in Year 3, and $71 million in Year 4 (the terminal year of purchasing). Assume all cash flows occur at the end of the year. The acquisition would be made immediately, if it is undertaken. John Dental Practice's post-merger beta is estimated to be 1.5, and its postmerger tax rate would be 34 percent. The risk-free rate is 6 percent, and the market risk premium is 4 percent. What is the value of John Dental Practice to Southern Dental Care's shareholders? (Show your work step by step by providing Excel worksheets.)

Reference no: EM131296664

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