Two companies create by merging together

Assignment Help Financial Management

Reference no: EM131897583

Yin Corp and Yang Inc are considering a merger. Yin expects $75 million in free cash flow next year, which is forecast to grow at 1% forever. Yang expects $25 million in free cash flow next year, which is forecast to grow at 3% forever. Because their cash flows are quite volatile, neither firm has any leverage right now. By merging, Yin and Yang expect to generate more stable cash flows that would allow the combined firm to have 20% leverage without risking default. Suppose the tax rate is 40%, the risk-free rate is 2%, current equity betas for both companies is 1, and the market risk premium is 5%. If the cost of debt issued by the combined firm would be 3%, how much value could the two companies create by merging together?

Reference no: EM131897583

Questions Cloud

Immediately after the translation of methionine : Immediately after the translation of methionine, a chemical is added which deletes all remaining uracil nucleotides in the mRNA

Southern blotting and nothern blotting : What is the difference between southern blotting and nothern blotting? And what does "in situ hybridization" mean?

Find some interesting results : You manage a lab that studies cancer formation and find some interesting results. You are testing levels of gene expression

Current market conditions market participants : Why is it that under current market conditions market participants are willing to accept negative real returns on their loans to the Treasury?

Two companies create by merging together : If the cost of debt issued by the combined firm would be 3%, how much value could the two companies create by merging together?

What would you recommend to pat : You are a business consultant. A new client, Pat, recently received a bachelor's degree in nutrition sciences with a business minor.

Owl pellet to human bones : Compare the bones you dissected in the owl pellet to human bones. Which bones are similar, which bones are different?

What are a few different conditions : What are a few different conditions or disease processes that effect bones or joints based on age?

Prepare a project development paper on political frames : Prepare a Project Development Paper on given Frames. Larger Frame Political/Social/Industrial/Cultural

User Account

All Pages