Consider the following two merger candidates. The merger is for diversificationpurposes only with no synergies involved. Risk-free rate is 4%.Market value of assetsFace value of zero coupon debtDebt maturityAsset return standard deviationCompany A$500$5004 years50%The asset return standard deviation for the combined firm is 20%. How much morevalue will debtholders collectively receive after the merge(keep two decimal places)?

Certainly! Let's break down the explanation step by step:1. **Value of Debt Before Merger (Company…

Answered: Consider the following two merger…

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter15: Harvesting The Business Venture Investment

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Consider the following two merger candidates. The merger is for diversification purposes only with no synergies involved. Risk-free rate is 4%. Market value of assets Company A $700 Face value of zero coupon debt Debt maturity Asset return standard deviation $700 4 years 50% The asset return standard deviation for the combined firm is 20%. How much more value will debtholders collectively receive after the merge(keep two decimal places)?
Consider the following two merger candidates. The merger is for diversification purposes only with no synergies involved. Risk-free rate is 4%. Market value of assets Face value of zero coupon debt Company A $900 $900 4 years Debt maturity Asset return standard deviation The asset return standard deviation for the combined firm is 20%. How much more value will debtholders collectively receive after the merge(keep two decimal places)? 50% Company $800 $800 4 years 50%
A large manufacturing company has offered to purchase Composites, Inc. for$32 per share. Before the merger proposal announcement, Composites wastrading at $20/share and, after the announcement, its share price jumped up to$28/share. It is estimated that, if the merger fails to go through, the price ofComposites will drop to $15/share. a) Assuming that the risk-free interest rate is 0%, how would you describea long position in Composites as a combination of positions in a risk-freebond and a binary put option? Please show your workings in detial.b) Assuming that the risk-free interest rate is 0%, how would you describea long position in Composites as a combination of positions in a risk-freebond and a binary call option? Please show your workings in detial.c) Please explain the event-driven strategies through the selling insuranceview.
Hastings Corporation is interested in acquiring Visscher Corporation. Assume that the riskfreerate of interest is 4%, and the market risk premium is 5%. Hastings estimates that if it acquires Visscher, the year-end dividendwill remain at $1.99 a share, but synergies will enable the dividend to grow at a constantrate of 7% a year (instead of the current 5%). Hastings also plans to increase the debt ratioof what would be its Visscher subsidiary; the effect of this would be to raise Visscher’s betato 1.05. What is the per-share value of Visscher to Hastings Corporation?
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. Firm B Firm T Shares outstanding 4,600 1,000 Price per share $ 40 $ 14 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $8,800. If Firm T is willing to be acquired for $16 per share in cash, what is the NPV of the a. merger? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) What will the price per share of the merged firm be assuming the conditions in b. (a)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) If Firm T is willing to be acquired for $16 per share in cash, what is the merger c. premium? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) d. Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers one of its shares for…
JJJCorporation is to be sold off by its shareholders. It currently has market values of debt and of equity at $20,000,000 and $25,000,000 respectively. The effective cost of debt is 12% while the cost of equity is 18%. Several analysts determined three potential acquirers who may be able to synergize with JJJ. The following returns from JJJ depending on the acquirer are as follows:" Acquirer Expected Firm Return G 20% H 24% I 18% Based on the above and assuming that liabilities will be retained by the entity, what is the highest selling price that the shareholders can get from the sale of JJJ?
Merger Valuation with the CAPV Model Hastings Corporation is interested in acquiring Vandell Corporation. Vandell currently has 1 million shares outstanding and a target capital structure consisting of 30% debt; its current beta is 1.60 (i.e., based on its target capital structure). Vandell’s debt interest rate is 7.7%. Assume that the risk-free rate of interest is 4% and the market risk premium is 8%. Both Vandell and Hastings face a 40% tax rate. Hastings Corporation estimates that if it acquires Vandell Corporation, synergies will cause Vandell’s free cash flows to be $2.6 million, $2.7 million, $3.4 million, and $3.62 million at Years 1 through 4, respectively, after which the free cash flows will grow at a constant 6% rate. Hastings plans to assume Vandell’s $10.73 million in debt (which has a 7.7% interest rate) and raise additional debt financing at the time of the acquisition. Hastings estimates that interest payments will be $1.6 million each year for Years 1, 2, and 3. After…
Merger Valuation with the CAPV Model Hastings Corporation is interested in acquiring Vandell Corporation. Vandell currently has 1 million shares outstanding and a target capital structure consisting of 30% debt; its current beta is 1.60 (i.e., based on its target capital structure). Vandell’s debt interest rate is 7.7%. Assume that the risk-free rate of interest is 4% and the market risk premium is 8%. Both Vandell and Hastings face a 40% tax rate. Hastings Corporation estimates that if it acquires Vandell Corporation, synergies will cause Vandell’s free cash flows to be $2.6 million, $2.7 million, $3.4 million, and $3.62 million at Years 1 through 4, respectively, after which the free cash flows will grow at a constant 6% rate. Hastings plans to assume Vandell’s $10.73 million in debt (which has a 7.7% interest rate) and raise additional debt financing at the time of the acquisition. Hastings estimates that interest payments will be $1.6 million each year for Years 1, 2, and 3. After…
Topic: Illiquidity, Synergy, Control, Book Value, Sound Value, Liquidation Value, Income Approach, and Forex Translation A Corp. and B Company will be merging. Independently, A has forecasted annual earnings of P400,000 and overall return of 16%. On the other hand, B had dividends of P480,000 last year, an overall return of 15% and a payout ratio of 80%. Once combined, they will have a total equity value of P7,300,000. How much is the value of synergy between the two entities?
companies can borrow at an 8 percent interest rate. The risk-free rate is 6 percent, and the expected return on the market is 13 percent. Bryce believes the current cost of capital for Birdie Golf is 11 percent. The beta for Hybrid Golf stock at its current capital structure is 1.30.Bryce has asked you to analyze the financial aspects of the potential merger. Specifically, he has asked you to answer the following questions:1. Suppose Hybrid shareholders will agree to a merger price of $63.25 per share. Should Birdie proceed with the merger?2. What is the highest price per share that Birdie should be willing to pay for Hybrid?3. Suppose Birdie is unwilling to pay cash for the merger but will consider a stock exchange. What exchange ratio would make the merger terms equivalent to the original merger price of $63.25 per share?4. What is the highest exchange ratio Birdie would be willing to pay and still undertake the merger?
Alpha is considering purchasing a competitor, Beta. Projected cash flows as a result of the merger are: Year 1 $1,450,000 Year 2 $1,750,000 Year 3 $2,000,000 Year 4 $2,500,000. In addition, Beta's year 4 cashflows are expected to grow at a constant rate of 6% after year 4. Beta's post merger beta is estimated to be 1.2 and its post-merger tax rate is 40%. The risk-free rate is 8% and the market risk premium is 4%. REQUIRED: 1. Compute for the maximum bid price that Alpha can offer in the acquisition. 2. How much is the net advantage/disadvantage to Alpha if it acquires Beta's 10,000,000 shares at the current market price of $9.
4. Merger analysis - Adjusted present value (APV) approach Wizard Inc., which is considering the acquisition of Global Satellite Corp. (GSC), estimates that acquiring GSC will result in an incremental value for the firm. The analysts involved in the deal have collected the following information from the projected financial statements of the target company: Data Collected (in millions of dollars) Year 1 Year 2 Year 3 EBIT $14.0 $16.8 $21.0 Interest expense 3.0 3.3 3.6 Debt 33.0 39.0 42.0 Total net operating capital 113.3 115.5 117.7 Global Satellite Corp. (GSC) is a publicly traded company, and its market-determined pre-merger beta is 1.00. You also have the following information about the company and the projected statements: • GSC currently has a $28.00 million market value of equity and $18.20 million in debt. • The risk-free rate is 5%, there is a 7.10% market risk premium, and the Capital Asset Pricing Model produces a pre-merger required rate of return on equity SL of 12.10%. •…

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