a. What is the synergy from the merger? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the value of Flash-in-the-Pan to Fly-By-Night? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) c. What is the cost to Fly-By-Night of each alternative? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) d. What is the NPV to Fly-By-Night of each alternative? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) e. What alternative should Fly-By-Night use?
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- FrontLier Company is planning to acquire Stint Corp. The additional pre-tax income from the acquisition will be $150,000 in the first year, but it will increase by 5% in future years. Because of diversification, the beta of FronLier will decrease from 1.20 to 0.9. Currently the return on the market is 11% and the riskless rate is 6%. What is the maximum price that FrontLier should pay for Stint Corp? The tax rate of FrontLier is 30%. O 1,870,000 1,872,500 1,875,000 O 1,909,091Gladstone Corporation is about to launch a new product. Depending on the success of the new product, Gladstone may have one of four values next year: $151 million, $134 million, $91 million, and $84 million. These outcomes are all equally likely, and this risk is diversifiable. Suppose the risk-free interest rate is 5% and that, in the event of default, 20% of the value of Gladstone's assets will be lost to bankruptcy costs. (Ignore all other market imperfections, such as taxes.) a. What is the initial value of Gladstone's equity without leverage? Now suppose Gladstone has zero-coupon debt with a $100 million face value due next year. b. What is the initial value of Gladstone's debt? c. What is the yield-to-maturity of the debt? What is its expected return? d. What is the initial value of Gladstone's equity? What is Gladstone's total value with leverage? Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year. e. If Gladstone does not issue debt, what…Green Mfg is about to launch a new product. Depending on the success of the new product, they will have one of four values next year: $150 million, $140 million, $95 million, and $82 million. These outcomes are all equally likely, and this risk is diversifiable. Suppose the risk-free interest rate is 5% and that, in the event of default, 30% of the value of their assets will be lost to bankruptcy costs. (Ignore all other market imperfections, such as taxes.) a. What is the initial value of Green's equity without leverage? Now suppose Green has zero-coupon debt with a $100 million face value due next year. b. What is the initial value of Green's equity? What is Green's total value with leverage?
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- Firm Valuation Schultz Industries is considering the purchase of Arras Manufacturing. Arras is currently a supplier for Schultz, and the acquisition would allow Schultz to better control its material supply. The current cash flow from assets for Arras is $8.1 million. The cash flows are expected to grow at 5 percent for the next five years before leveling off to 2 percent for the indefinite future. The cost of capital for Schultz and Arras is 9 percent and 7 percent, respectively. Arras currently has 3 million shares of stock outstanding and $25 million in debt outstanding. What is the maximum price per share Schultz should pay for Arras?Cuppy World is considering purchasing a competitor, Cupcake. Projected cash flows as a result of the merger are: Year 1, P1,450,000; Year 2, P1,750,000; Year 3, P2,000,000; Year 4, P2,500,000. In addition, Cupcake's year4 cash flows are expected to grow at a constant rate of 6% after year 4. Cupcake'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%. 1. Compute for the maximum bid price that Cuppy World can offer in the acquisition. 2. How much is the net advantage/disadvantage to Cuppy World if it acquires Cupcake's 10,000,000 shares at the current market price of P9?Kohwe Corporation plans to issue equity to raise $50.7 million to finance a new investment. After making the investment, Kohwe expects to earn free cash flows of $10.4 million each year. Kohwe's only asset is this investment opportunity. Suppose the appropriate discount rate for Kohwe's future free cash flows is 7.7%, and the only capital market imperfections are corporate taxes and financial distress costs. a. What is the NPV of Kohwe's investment? b. What is the value of Kohwe if it finances the investment with equity? a. What is the NPV of Kohwe's investment? The NPV of Kohwe's investment is $ million. (Round to two decimal places.) b. What is the value of Kohwe if it finances the investment with equity? The Kohwe finances stment with equity $ million. (Round decimal places.)
- Lipsion Ltd company is thinking about investing in one of two potential new productsfor sale. The projections are as follows: year revenue/ product s revenue/ product v0 (150,000) outlay (150000) outlay1 14000 150002 24000 253333 44000 520004 84000 63333 Calculate NPV of both products (to 1 d.p.) assuming a discount rate of 7%. Then decide which product should be selected and why ?The following table shows the projected free cash flows of an acquisition target. The potential acquirer wants to estimate its maximum acquisition price at an 8 percent discount rate and a terminal value in year 5 based on the perpetual growth equation with a 4 percent perpetual growth rate. Year 1 2 3 4 5 Free cash flow −830 −415 0 218 736 a. Estimate the target’s maximum acquisition price. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) b. Estimate the target’s maximum acquisition price when the discount rate is 7 percent and the perpetual growth rate is 5 percent. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)The following table shows the projected free cash flows of an acquisition target. The potential acquirer wants to estimate its maximum acquisition price at an 8 percent discount rate and a terminal value in year 5 based on the perpetual growth equation with a 4 percent perpetual growth rate. Year 1 2 3 4 5 Free cash flow −860 −430 0 236 772 Estimate the target’s maximum acquisition price. Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. Estimate the target’s maximum acquisition price when the discount rate is 7 percent and the perpetual growth rate is 5 percent. Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.