Find out the expected return on capital, Macroeconomics

Assignment Help:

Butthole Industries is buying out Avengers, Inc.  Butthole and Avengers both have market capitalizations equal to their fair value or the present value of their net cash flows.  Butthole generates $45M per year in net cash flows but has no growth.  Avengers is expected to generate $25M in net cash flows next year. Also, grow at 15% per year after.  The return on capital of both companies over the past years:

Return on Capital

Butthole

Avengers

Year 1

-20.5%

45.8%

Year 2

41.1%

-5.8%

Year 3

10.5%

20.9%

Note that the relevant discount rate for each firm is the "average" return on capital.

A.  If past history is a good indicator of future performance, what are the expected return on capital and standard deviation of return on capital for the merged entity?

B.  In which of the two major dimensions this merger could possibly help Butthole: boosting the return or reducing the risk?  Prove your point quantitatively.

 


Related Discussions:- Find out the expected return on capital

Introduction to demand analysis, INTRODUCTION TO DEMAND ANALYSIS: It i...

INTRODUCTION TO DEMAND ANALYSIS: It is generally seen that market demand curve is downward sloping. Market demand curve (or sometimes called Aggregate demand curve) is nothing

Circular flow of income in an open economy, explain the effects of various ...

explain the effects of various injections and withdrawals and show the equilibrium in the circular flow

Difference between project proposal and project feasibility , Project feasi...

Project feasibility study is needed to make a decision whether the project proposal is technically and economically possible. After finalization of the project feasibility report b

Consumption function in the IS-LM model, Q. Consumption function in the IS-...

Q. Consumption function in the IS-LM model? The consumption function will be the same as in cross model, consumption will depend positively on Y. In the classical model, consum

Find out the marginal utility-demand curve, 1.  What is law of diminishing ...

1.  What is law of diminishing marginal utility? 2.  Find out the marginal utility for the following schedule of consuming pizza Pizza consumed 0

Aplia Assignment, Need answers for problems after chapters 10, 11 & 12 for ...

Need answers for problems after chapters 10, 11 & 12 for Macroeconomics in Aplia.com. Need today or tomorrow. Can you help?

Assignment, derive equations for IS,LM and AD curves.

derive equations for IS,LM and AD curves.

Circular flow of income, Explain a circular flow of income in a frugal econ...

Explain a circular flow of income in a frugal econmomy with diagram

Lagrangian of the consumer, This problem substitutes financial health with ...

This problem substitutes financial health with housing in a 2 period consumption savings model. The representative consumer has the utility function u(c1, c2) = lnc1 + lnc2 with ea

Fiscal policy have occurred, What were the key provisions of the economic s...

What were the key provisions of the economic stimulus bill passed by congress in February 2008? What further changes in fiscal policy have occurred since this time?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd