What is the present value of the delvo cash inflows

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Jason Corporation is considering an acquisition of Delvo Company. Delvo has a capital structure of 50% equity with a current book value of $10 million in asset. Delvo's pre-merger beat is 1.36 and is not likely to be altered as a result of the proposed merger. Jason's per-merger beta is 1.02 and both it and Delvo face a 40% tax rate. Jason's capital structure is 40% debt and 60% equity and it has $24 million in total assets. The net cash flows of Delvo available to Jason's stockholders are estimated at $4 million for each of the next three years and terminal value of $19 million in year 4. Additionally, new debt issued by the combined firm would yield 10% before taxes and the cost of equity is estimated at 12.50%. Currently, the risk fee is 6% and the market risk premium is 5.88%.

-What is the present value of the Delvo cash inflows to Jason?

Reference no: EM132572265

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