10 poincs Problem 21-9 Merger Gains and Costs (LO2) Velcro Saddles is contemplating the acquisition of Skiers Airbags Incorporated. The values of the two companies as separate enti are $34 million and $17 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketi and administrative costs by $570,000 per year in perpetuity. Velcro Saddles is willing to pay $25 million cash for Skiers'. The opportunity cost of capital is 5%. a. What is the gain from the merger? Note: Enter your answer in millions rounded to 2 decimal places. b. What is the cost of the cash offer? Note: Enter your answer in millions. c. What is the NFV of the acquisition under the cash offer? Note: Do not round Intermediate calculations. Enter your answer in millions rounded to 2 decimal places. Answer is complete but not entirely correct. 00 8 a. Gain from the merger S 9.50 million b. Cost of the cash offer S 251 million c. NPV S 1.50 milior

13. The following information relates to two companies   Alpha plc Beta plc Profit after tax £200,000 £800,000 P/E ratio 16 21 The management of Beta estimate that if they acquire Alpha they could save an after tax cost of £100,000 annually.  Additionally, they estimate that the P/E ratio of the new company would be 20.  On the basis of these estimates, what is the maximum price that Beta plc should offer for Alpha? A   £6.3m B   £5.2m C   £4.2m D   £2.0m

Question 15:  • In addition to the $150 million purchase price for Kappa’s equity, $4.5 million will be used to repay Kappa’s existing debt. • With $5 million in transaction fees, the acquisition will require $159.5 million in total funds. • The Blackstone Group’s sources of funds include the new loan of $100 million as well as $ 6.5 million Kappa’s own excess cash (which The Blackstone Group will have access to). • Thus The Blackstone Group’s required equity contribution to the transaction is $53 million. • Exercise 15: how do you get $53 million?

Gmail > docs.google.com a P Company is trying to decide whether to acquire S Co., P Co. expects that S will earn approximately $200,000 per year in net income over the next five years. This income is higher than the 14% annual return on assets considered to be the industry "norm." Read the above case and choose the best answer of the following: If the fair value of Hager Inc. assets equal to $1,000,000. What is the estimation of goodwill if P Co. is willing to pay for excess earnings for an expected life of 4 years? * $250,000 $240,000 $260,000 None of the answers

Appendix The directors of Mylo Ltd are currently considering two mutually exclusive investment projects. Both projects are concerned with the purchase of new plant. The following data are available for each project: Project 1 Project 2 Rwf000 Rwf000 Cost (immediate outlay)                   100         60   Expected annual net profit (loss): Year 1 29 18 Year 2 (1) (2) Year 3 2 4 Estimated residual value of the plant 7                             6   The business has an estimated cost of capital of 10 per cent, and uses the straight-line method of depreciation for all non-current (fixed) assets when calculating net profit. Neither project would increase the working capital of the business. The business has sufficient funds to meet all capital expenditure requirements.   Required: (a) Calculate for each project: (i) The net present value. (ii) The approximate internal rate of return. (b) State which, if any, of the two investment projects the directors of Mylo Ltd should accept, and…

LO 3 E3.14 Identification of Variable Interest Entity and Primary Beneficiary Softek Corporation forms a separate legal entity, Startek, to develop new technology. The entity is funded by $4,000,000 in outside equity and $26,000,000 in debt. Softek guarantees Startek's debt. The entity is expected to generate the following cash flows at the end of one year: Cash Flow $11,000,000 33,000,000 55,000,000 A discount rate of 10 percent is appropriate. Required b. Probability 0.40 0.20 0.40 a. Assume qualitative analysis of Startek's VIE status is inconclusive. Quantitatively analyze whether Startek is a variable interest entity. Assume Startek is a variable interest entity. Identify the factors that determine whether Softek is the primary beneficiary that must consolidate Startek.

Exercise 14A-4 (Algo) Basic Present Value Concepts [LO14-7] Fraser Company will need a new warehouse in eighteen years. The warehouse will cost $410,000 to build.   Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: What lump-sum amount should the company invest now to have the $410,000 available at the end of the eighteen-year period? Assume that the company can invest money at: (Round your final answer to the nearest whole dollar amount.)

f5 Required information [The following information applies to the questions displayed below.] Beacon Company is considering automating its production facility. The initial investment in automation would be $9.11 million, and the equipment has a useful life of 7 years with a residual value of $1,200,000. The company will use straight- line depreciation. Beacon could expect a production increase of 44,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) 71,000 units Proposed (automation) 115,000 units Per Per Production and sales volume Unit Total Unit Total Sales revenue $ 90 $ ? $ 90 $ ? Variable costs Direct materials $ 16 $ 16 Direct labor 15 ? Variable manufacturing overhead 9 Contribution margin Total variable manufacturing costs Fixed manufacturing costs 40 གནྡྷ $ 50 ? $53 ? Net operating income $ 1,130,000 ? $ 2,330,000 ? 4. Using a discount rate of 15 percent, calculate the net present value (NPV) of the proposed investment.…

QUESTION 2 Awen Ltd is a manufacturer of machine tools and is at present contemplating an issue of GH¢2,000,000 10% debenture stock (2020) in order to assist the remodelling of its present production facilities. Some shareholders are reluctant to approve additional long-term debt due to the fact that the machine tools industry is subject to wide-ranging fluctuations in sales and profits. A group of shareholders have approached you and asked you to comment on the performance of Awen Ltd as compared with industrial averages and to make recommendations as to whether they should approve the proposed additional long- term debt. Abbreviated financial statements and typical ratios for firms in the machine tools industry are as follows: Awen Ltd Statement of Comprehensive Income for the year ended 31/12 2004 GH¢000 2005 GH¢000 23,500 16,000 7,500 (2,000) (3,000) Sales 20,500 14,000 6,500 (1,900) (2,600) Cost of Sales Gross profit Selling expenses Administrative expenses Operating profit…

Question 2 The directors of Paulter Ltd are currently considering two mutually exclusive investment projects. Both projects are concerned with the purchase of new equipment. The following information is available for each project: Cost (immediate outlay) Expected annual operating profit (loss) Year 1 2 3 4 5 Estimated residual value of the plant after 5 years Project 1 £ 120,000 29,000 (8,000) 12,000 22,000 18,000 7,000 Project 2 £ 80,000 18,000 (2,000) 9,000 12,000 14,000 6,000 The business uses the straight-line method of depreciation for all of its non-current (fixed) assets when calculating operating profit. Because of capital rationing only one project can be accepted. The business has an estimated cost of capital of 8%. Required: a) Calculate the annual depreciation of each project b) Calculate for each project: i. the net present value; ii. the accounting rate of return; iii. the payback period c) State with reasons which, if any, of the two investment projects the directors of…