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Gekko Properties is considering purchasing Teldar Properties. Gekko's analysts project that the merger will result in incremental after-tax net cash flows of $2million, $4 million, $5 million, and $10 million over the next four years. The terminal value of the firm's operations, as of Year 4, is expected to be $107 million.Assume all cash flows occur at the end of the year. The acquisition would be made immediately, if it is undertaken. Teldar's post-merger beta is estimated to be 1.7,and its post-merger tax rate would be 35%. The risk-free rate is 6%, and the market risk premium is 5.5%. What is the value of Teldar to Gekko Properties?
Answer
a.$74,084,760
b.$58,526,961
c.$70,380,522
d.$57,045,265
e.$68,157,980

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Answer #1
Start: 100 mil
100 mil * (1-.35) = 100 mil * .65 = 65 mil
6.5 mil *1.06 = 68 mil

e.$68,157,980
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