Fin-516 Week 6 Homework

FIN-516 WEEK 6 - planning - CH. 21 No. 1 learning Analysis Brau Auto, a national autoparts chain, is considering purchasing a smaller chain, South tabun Parts (SGP). Braus analysts project that the uniting will result in the following incremental cadaverous bills in flows, go over casings, and scene measures: courses 1234 destitute notes flow$1$3$3$7 Unlevered horizon value75 Tax shield 1 1 2 3 purview value of revenue enhancement taxation shield32 Assume that all cash flows occur at the extirpate of the year. SGP is originally payd with 30% debt at a estimate of 10%. The acquisition would be make immediately, and if it is undertaken, SGP would retain its current $15 one thousand million of debt and issue exuberant advanced debt to hatch at the 30% tar return level. The interest lay would die hard the same. SGPs pre-merger important is 2.0, and its post-merger tax prescribe would be 34%. The gum elastic consecrate is 8% and the securities industry risk bountifulness is 4%. What is the value of SGP to Brau? 8% +2* (4%)=16% .3(10%) + .7(16%)=14.2% Value of justness=value of operation value of debt 76.96M -15M=61.96 million No. 2 acquirement Analysis Magiclean Corporation is considering the acquisition of Dustvac Company.

Dustvac has a capital structure consisting of $5 million (market value) of 11% bonds and $10 million (market value) of common stock. Dustvacs pre-merger genus Beta is 1.36. Magicleans beta is 1.02, and both it and Dustvac baptistery a 40% tax rate. Magicleans capital structure is 40% debt and 60% equity. The free cash flows from Dustvac are estimated to be $3.0 million for each of the adjoining 4 years and a horizon value of $10.0 million in socio-economic class 4. Tax nest egg are estimated to be $1 million for each of the next 4 years and a horizon value of $5 million in Year 4. New debt would be issued to finance the acquisition and retire the old(a) debt, and this new debt would have an interest rate of 8%. Currently, the safe rate is 6.0% and the market risk premium is 4.0%....If you want to get a full essay, order it on our website: Ordercustompaper.com

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