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In: Finance
Best Window & Door Corporation is considering the acquisition of Glassmakers Inc. Glassmakers has a capital...
- Best Window & Door Corporation is considering the acquisition of Glassmakers Inc. Glassmakers has a capital structure consisting of $5 million (market value) of 11% bonds and $10 million (market value) of common stock. Glassmakers' pre-merger beta is 1.36. Best's beta is 1.02, and both it and Glassmakers face a 40% tax rate. Best's capital structure is 40% debt and 60% equity. The free cash flows from Glassmakers are estimated to be $3.0 million for each of the next 4 years and a horizon value of $10.0 million in Year 4. Tax savings 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 debt, and this new debt would have an interest rate of 8%. Currently, the risk-free rate is 6.0% and the market risk premium is 4.0%.
- What is Glassmakers' pre-merger WACC?
- What discount rate should you use to discount Glassmakers' free cash flows and interest tax savings?
- What is the value of Glassmakers' equity to Best?
Solutions
jeff jeffy answered 6 months agoRelated Solutions
Best Window & Door Corporation is considering the acquisition of Glassmakers Inc. Glassmakers has a capital...
Best Window & Door Corporation is considering the
acquisition of Glassmakers Inc. Glassmakers has a capital structure
consisting of $5 million (market value) of 11% bonds and $10
million (market value) of common stock. Glassmakers' pre-merger
beta is 1.36. Best's beta is 1.02, and both it and Glassmakers face
a 40% tax rate. Best's capital structure is 40% debt and 60%
equity. The free cash flows from Glassmakers are estimated to be
$3.0 million for each of the next 4...
Best Window & Door Corporation is considering the acquisition of Glassmakers Inc. Glassmakers has a capital...
Best Window & Door Corporation is considering the
acquisition of Glassmakers Inc. Glassmakers has a capital structure
consisting of $5 million (market value) of 11% bonds and $10
million (market value) of common stock. Glassmakers' pre-merger
beta is 1.36. Best's beta is 1.02, and both it and Glassmakers face
a 40% tax rate. Best's capital structure is 40% debt and 60%
equity. The free cash flows from Glassmakers are estimated to be
$3.0 million for each of the next 4...
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2016
2015
2014
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$1.05
$1.00
$0.95
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Income
Incremental Net Cash
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$
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Year 4
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