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Happy Times, Inc., wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $210 million and a YTM of 8 percent. The company’s market capitalization is $310 million, and the required return on equity is 13 percent. Joe’s currently has debt outstanding with a market value of $28 million. The EBIT for Joe’s next year is projected to be $15 million. EBIT is expected to grow at 7 percent per year for the next five years before slowing to 5 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 6 percent, 12 percent, and 5 percent, respectively. Joe’s has 1.95 million shares outstanding and the tax rate for both companies is 35 percent. a. What is the maximum share price that Happy Times should be willing to pay for Joe’s? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Maximum share price $ After examining your analysis, the CFO of Happy Times is uncomfortable using the perpetual growth rate in cash flows. Instead, she feels that the terminal value should be estimated using the EV/EBITDA multiple. The appropriate EV/EBITDA multiple is 7. b. What is your new estimate of the maximum share price for the purchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Maximum share price $
The salesperson offers, "Buy this new car for $25,000 cash or, with appropriate down payment, pay $500 per month for 48 months at 8% interest." Assuming that the salesperson does not offer a free lunch, calculate the "appropriate" down payment
Write a memo to your supervisor explaining the cash conversion cycle at your company, a manufacturer of plastic toys. Be sure to address the following: Material ordering costs-Labor costs-Credit sales (accounts receivables)
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The common stock of Jensen Shipping has an expected return of 14.7 percent. The return on the market is 10.8 percent and the risk-free rate of return is 3.8 percent. What is the beta of this stock?
Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $5.5 million in anticipation of using it as a warehouse and distribution site, but the comp..
David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 11%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 11.18%. What is the com..
Your firm has an average collection period of 23 days. Current practice is to factor all receivables immediately at a discount of 1.3 percent. What is the effective cost of borrowing in this case?
Which 1040 form should each of the following individuals use? a high school student with an after-school job and interest earnings of $480 from savings accounts. a college student who, because of ownership of property, is able to itemize deductions r..
What is the dividend yield on Watson's common stock?
Common stock value-Variable growth Newman manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $2.94 per share and paid cash dividends of $1.24 per share (D_0 = $1.24). What is the maxi..
Smith Inc. is considering a project with an initial cost of $1.07 million. The project will not produce any cash flows for the first two years. Starting in year 3, the project will produce cash inflows of $667,000 a year for 6 years. This project is ..
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