Value of aberdeen petroleum stock with managerial control

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Reference no: EM131933755

The following information relates to Aberdeen Petroleum Corporation:

Aberdeen Petroleum:

Dividend payout ratio = 25%

Beta = 1.10

Growth rate = 4%

Peer Group:

Dividend payout ratio = 40%

Beta = 1.20

Growth rate = 5%

Aberdeen Petroleum had earnings per share in the current year of $3.00. The U.S. T-bill rate of return is 3.00% and the market rate of return is 9.50%.

1. What is the value of Aberdeen Petroleum's stock with managerial control, assuming such control allows the company to improve its performance to the level of its peer group?

a.  $9.63

b. $11.67

c. $15.40

d. $20.68

e. $21.72

2. The following information relates to two recently merged firms:

FCFF1 = $500,000

Existing Capital Structure:

Equity = $300,000,000

Debt = $100,000,000

Ke = 12.00%

Kd = 6.00%

Optimal Capital Structure:

Equity = $240,000,000

Debt = $160,000,000

Ke = 12.00%

Kd = 7.00%

3. The perpetual growth rate is expected to be 5.00%. What is the value of the financial synergy for moving to the optimal capital structure?

A. $779,534

B. $885,472

C. $909,091

D. None of the above

Reference no: EM131933755

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