ABC is considering purchasing a smaller chain, XYZ software. ABC’s financial analysts project that the merger will result in incremental net cash flows of $5.5 million in Year 1, $6.5 million in Year 2, $8.5 million in Year 3, and $15.5 million in year 4. Interest tax savings after the merger are estimated to be $1.8 million for each of the next 4 years. The expected cost of capital will be 10.5%, and the company expects to experience a normal growth of 6% starting at the beginning of the fifth year. XYZ’s outstanding debt is estimated to be $40 million, and the post-merger beta is estimated to be 1.50. The risk-free rate is 3.5 percent, and the market returns are 10 percent. What is the value of XYZ Software to ABC software?
ABC is considering purchasing a smaller chain, XYZ software. ABC’s financial analysts project that the merger...
Pizza Place, a national pizza chain, is considering purchasing a smaller chain, Western Mountain Chain. Pizza Place's analysts project that the merger will result in incremental cash flows of $1.5 million in Year 1, $2 million in Year 2, and $3 million in Year 3, $5 million in Year 4 In addition, Western's Year 4 cash flows are expected to grow at a constant rate of 5% after Year 4. Assume that all cash flows occur at the end of...
Raymond Supply, a national hardware chain, is considering purchasing a smaller chain, Strauss & Glazer Parts (SGP). Raymond's analysts project that the merger will result in the following incremental free cash flows, tax shields, and horizon values (in millions): Year 1 2 3 4 FCF $2 $3 $4 $7 Unlevered Horizon value $75 Tax shield $1 $1 $2 $3 Horizon value of tax shield $32 Assume that all cash flows occur at the end of the year. SGP is currently...
. Emerson Enterprises, Inc., a nationwide electronics company, is considering purchasing a smaller regional electronics manufacturer, Midwest Electronics, Inc. Emerson Enterprises’ analysts project that the merger will result in incremental free cash flows as follows: Year Free Cash Flow (FCF) t = 1 $4 million t = 2 $5.5 million t = 3 $6.75 million t = 4 $25 million The Year 4 Free Cash Flow (FCF) listed in the table above includes a horizon value of $15 million. Assume...
Asgard Corp, is considering to purchase a smaller kingdom called Midgard. Asgard’s analysts project that the merger will result in the following incremental free cash flows, horizon values, and tax shields: Year 1 2 3 4 Free cash flow $2 $4 $4 $6 Unlevered horizon value $80 Tax shield $1 $2 $3 $4 Horizon value of tax shield $30 Assume that all cash flows occur at the end of the year and are in millions. Midgard is currently financed with...