Acquirer firm plans to launch a takeover of Target firm. The
manager of Acquirer indicates that the deal will increase the free
cash flow of the combined business by $13.6m per year forever. The
beta of the combined firm is 1.2, market portfolio return is 12%
and risk free interest rate is 4%. Firms Involved in the Takeover
is shown 
(i). Calculate the value of
synergy of the deal. (6 marks) 10 (ii). Calculate the offer price
at which Acquirer shares the total synergy as in (i) equally with
Target
Homework Answers
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Acquirer firm plans to launch a takeover of Target firm. The manager of Acquirer indicates that...
Acquirer firm plans to launch a takeover of Target firm. The manager of Acquirer indicates that...
Acquirer firm plans to launch a takeover of Target firm. The manager of Acquirer indicates that the deal will increase the free cash flow of the combined business by $13.6m per year forever. The beta of the combined firm is 1.2, market portfolio return is 12% and risk free interest rate is 4%. Firms Involved in the Takeover Acquirer Target Assets ($m) 6000 800 Debt ($m) 2000 300 Number of shares (m) 80 20 (i). Calculate the value of synergy...
14. What is the synergy of this merger? 15. Suppose you decide to share 30% of...
14. What is the synergy of this merger?
15. Suppose you decide to share 30% of the synergy to the target
shareholders, what is your initial offer?
16. What is the maximum price you can offer?
You are leading a team on a M&A deal. Suddenly your analyst has disappeared and you have the following unfinished spreadsheet. The acquirer and the target are assumed to have zero growth. Now it is up to you to finish this job. Acquirer Target...
Firms facing hostile takeovers often take actions to forestall the acquisition. For instance, a firm could...
Firms facing hostile takeovers often take actions to forestall the acquisition. For instance, a firm could seek help from another company to become a friendly acquirer of a target firm and protect itself from a hostile takeover. Such tactics are referred to as Denton Manufacturing has made a tender offer for Hynde Industries. Both companies are relatively large firms in the automobile parts industry. Which of the following likely would be the most effective defense tactic for Hynde to take...
Please show the work.. ABC Inc is looking to launch an acquisition of a target for...
Please show the work..
ABC Inc is looking to launch an acquisition of a target for $3 billion. The target is expected to generate cash flows for five years. Table 1 below shows the expected cash flows of the target along with the acquisition cost. Table 2 shows the financial data required to generate a discount factor for the cash flows. 1. Calculate the discount rate (WACC) for the acquisition. 2. Evaluate the deal using NPV, IRR, and Payback. Consider...
Question 4 (14 marks) Green Rice Smartphone Inc. plans to acquire CCA Technologies Inc. Assume that...
Question 4 (14 marks) Green Rice Smartphone Inc. plans to acquire CCA Technologies Inc. Assume that both firms have no debts outstanding. Before the acquisition, CCA's share price is $16 and there are 1,000 shares outstanding. Green Rice's share price is $25 and there are 1,500 shares outstanding. Green Rice has estimated that, after the acquisition, its annual cash flow will increase by $1,200 permanently. The discount rate of the combined firm will be 10%. Green Rice is thinking about...
5. Assuming the free cash flows from synergy will remain level in perpetuity, estimate the after-tax...
5. Assuming the free cash flows from synergy will remain level
in perpetuity, estimate the after-tax present value of anticipated
synergy?
Please show all steps.
END OF CHAPTER CASE STUDY: DID UNITED TECHNOLOGIES OVERPAY FOR ROCKWELL COLLINS? Case Study Objectives: To Illustrate • A methodology for determining if an acquirer overpaid for a target firm, • How sensitive discounted cash flow valuation is to changes in key assumptions, and • The limitations of discounted cash flow valuation methods. United Technologies...
Home Work #3 Question 1 Classify the following events as mostly systematic or mostly un-systematic. Is...
Home Work #3 Question 1 Classify the following events as mostly systematic or mostly un-systematic. Is the distinction clear in every case? a. Short term interest rates decrease expectantly. b. The interest rate a company pays on its short term debt borrowing is increased by the bank. c. Oil prices expectantly decline. d. An oil tanker runs aground creating a large oil spill. e. A major manufacturing company loses a multimillion dollar product liability suit. f. The Supreme Court of...
Section 3: Capital Asset Pricing Model and Cost of Capital (32 marks) a. Suppose the risk...
Section 3: Capital Asset Pricing Model and Cost of Capital (32 marks) a. Suppose the risk free rate, FRF is 5%, the return on the market, rm is 14% and beta of stock A is 1.4, what is the required rate of return, rs of stock A? (1 mark) b. If the required rate of return on stock M, is 17%, the risk free rate is 5% and the return to market is 15%, what is the beta of stock...
3. What are the key limitations of the comparable companies valuation methodology? Be specific. 4. In...
3. What are the key limitations of the comparable companies
valuation methodology? Be specific.
4. In estimating the value of anticipated cost savings, should
an analyst use St. Jude’s marginal tax rate of 40% or its effective
tax rate of 22%? Explain your answer.
5. What is the PV of the $500-million pretax annual cost savings
expected to start in 2020? Assume the appropriate cost of capital
is 10% and that the savings will continue in perpetuity. Show your
work....
help pls Questions 21-27 are based on the following information. CAPM and stock valuation. Your aunt, Beth, plan...
help pls
Questions 21-27 are based on the following information. CAPM and stock valuation. Your aunt, Beth, plans to invest in the common stock of Smart-investment Corporation Knowing that you are studying finance, she asks for your suggestion. You calculation shows that yield on Treasury securities is 6%. You know that the S&P 500 Index's expected annual return is 14% Your coonometric model tells you that beta of this company's stock is 1.25. Aunt Beth tells you that this company...
14. What is the synergy of this merger?
15. Suppose you decide to share 30% of the synergy to the target
shareholders, what is your initial offer?
16. What is the maximum price you can offer?
You are leading a team on a M&A deal. Suddenly your analyst has disappeared and you have the following unfinished spreadsheet. The acquirer and the target are assumed to have zero growth. Now it is up to you to finish this job. Acquirer Target...
Firms facing hostile takeovers often take actions to forestall the acquisition. For instance, a firm could seek help from another company to become a friendly acquirer of a target firm and protect itself from a hostile takeover. Such tactics are referred to as Denton Manufacturing has made a tender offer for Hynde Industries. Both companies are relatively large firms in the automobile parts industry. Which of the following likely would be the most effective defense tactic for Hynde to take...
Please show the work..
ABC Inc is looking to launch an acquisition of a target for $3 billion. The target is expected to generate cash flows for five years. Table 1 below shows the expected cash flows of the target along with the acquisition cost. Table 2 shows the financial data required to generate a discount factor for the cash flows. 1. Calculate the discount rate (WACC) for the acquisition. 2. Evaluate the deal using NPV, IRR, and Payback. Consider...
Question 4 (14 marks) Green Rice Smartphone Inc. plans to acquire CCA Technologies Inc. Assume that both firms have no debts outstanding. Before the acquisition, CCA's share price is $16 and there are 1,000 shares outstanding. Green Rice's share price is $25 and there are 1,500 shares outstanding. Green Rice has estimated that, after the acquisition, its annual cash flow will increase by $1,200 permanently. The discount rate of the combined firm will be 10%. Green Rice is thinking about...
5. Assuming the free cash flows from synergy will remain level
in perpetuity, estimate the after-tax present value of anticipated
synergy?
Please show all steps.
END OF CHAPTER CASE STUDY: DID UNITED TECHNOLOGIES OVERPAY FOR ROCKWELL COLLINS? Case Study Objectives: To Illustrate • A methodology for determining if an acquirer overpaid for a target firm, • How sensitive discounted cash flow valuation is to changes in key assumptions, and • The limitations of discounted cash flow valuation methods. United Technologies...
Home Work #3 Question 1 Classify the following events as mostly systematic or mostly un-systematic. Is the distinction clear in every case? a. Short term interest rates decrease expectantly. b. The interest rate a company pays on its short term debt borrowing is increased by the bank. c. Oil prices expectantly decline. d. An oil tanker runs aground creating a large oil spill. e. A major manufacturing company loses a multimillion dollar product liability suit. f. The Supreme Court of...
Section 3: Capital Asset Pricing Model and Cost of Capital (32 marks) a. Suppose the risk free rate, FRF is 5%, the return on the market, rm is 14% and beta of stock A is 1.4, what is the required rate of return, rs of stock A? (1 mark) b. If the required rate of return on stock M, is 17%, the risk free rate is 5% and the return to market is 15%, what is the beta of stock...
3. What are the key limitations of the comparable companies
valuation methodology? Be specific.
4. In estimating the value of anticipated cost savings, should
an analyst use St. Jude’s marginal tax rate of 40% or its effective
tax rate of 22%? Explain your answer.
5. What is the PV of the $500-million pretax annual cost savings
expected to start in 2020? Assume the appropriate cost of capital
is 10% and that the savings will continue in perpetuity. Show your
work....
help pls
Questions 21-27 are based on the following information. CAPM and stock valuation. Your aunt, Beth, plans to invest in the common stock of Smart-investment Corporation Knowing that you are studying finance, she asks for your suggestion. You calculation shows that yield on Treasury securities is 6%. You know that the S&P 500 Index's expected annual return is 14% Your coonometric model tells you that beta of this company's stock is 1.25. Aunt Beth tells you that this company...
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