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Your firm wants to acquire Gamma Company. Gamma is a privately held firm with no debt, and a majority shareholder who owns 51% of the shares of this company. All shares are illiquid. The firm has a discounted cash flow valuation of $180M, and there are 15M shares outstanding. You plan to offer the majority shareholder a higher price than the minority shareholders. You believe a 20% control premium and a 30% illiquidity discount are justified, relative to the base case valuation.
a. What is the value per share, assuming completely liquid stock and dispersed ownership?
b. What is the value of the controlling block of equity?
c. What is the highest price per share you could offer for the controlling equity?
d. What is the value of the minority block of equity?
e. What is the highest price per share you could offer for the minority equity?
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The appropriate market capitalization rate for the unleveraged cash flow is 14% per year, and the firm currently has debt of $4 million outstanding. Use the free cash flow approach to calculate the value of the firm and the firm's equity.
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Compute the cost of preferred equity assuming the dividend paid for preferred stock is $2.93 and the current value of the stock is $50 per share.
Why was Newfield restructuring its business in 2013? What are the merits of the divestitures?
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