Question
In: Finance
Juicers Inc. is thinking of acquiring Fast Fruit Company. Juicers has determined that Fast Fruit's current...
Juicers Inc. is thinking of acquiring Fast Fruit Company. Juicers has determined that Fast Fruit's current cost of equity is 17.5%; Fast Fruit currently has no debt outstanding. In Year 1, Juicers expects Fast Fruit to generate $9 million in NOPAT and invest $50 million in total net operating capital. Fast Fruit will borrow to finance this expansion, with the first interest payment ($5 million) due at Year 2. (There will be no interest due at Year 1.) In Year 2, Fast Fruit will generate $25 million in NOPAT and invest $10 million in total net operating capital. Fast Fruit's marginal tax rate is 25%. After the second year, the free cash flows and the tax shields each will grow at a constant rate of 4%. Assume that all cash flows occur at the end of the year. If Juicers must pay $90 million to acquire Fast Fruit, what is the NPV of the proposed acquisition? (Report your answer in millions of dollars.)
Solutions
jeff jeffy answered 1 month agoRelated Solutions
Juicers Inc. is thinking of acquiring Fast Fruit Company. Juicers has determined that Fast Fruit's current...
Juicers Inc. is thinking of acquiring Fast Fruit Company.
Juicers has determined that Fast Fruit's current cost of equity is
17.5%; Fast Fruit currently has no debt outstanding. In Year 1,
Juicers expects Fast Fruit to generate $9 million in NOPAT and
invest $50 million in total net operating capital. Fast Fruit will
borrow to finance this expansion, with the first interest payment
($5 million) due at Year 2. (There will be no interest due at Year
1.) In Year...
Juicers Inc. is thinking of acquiring Fast Fruit Company. Juicers has determined that Fast Fruit's current...
Juicers Inc. is thinking of acquiring Fast Fruit Company. Juicers
has determined that Fast Fruit's current cost of equity is 17.5%;
Fast Fruit currently has no debt outstanding. In Year 1, Juicers
expects Fast Fruit to generate $9 million in NOPAT and invest $50
million in total net operating capital. Fast Fruit will borrow to
finance this expansion, with the first interest payment ($5
million) due at Year 2. (There will be no interest due at Year 1.)
In Year...
The Succotash Company is thinking of acquiring another company as a scale-expansion project. The target firm...
The Succotash Company
is thinking of acquiring another company as a scale-expansion
project. The target firm has a market value debt-to-equity ratio of
1.0, an equity beta of 1.50, and EBIT of $39,943,900 per year.
Succotash’s capital structure is 70% equity and 30% debt, and if it
acquires the target firm, will keep the debt ratio at 30%. The risk
free rate is 8%, the market risk premium is 8.5%, the tax rate is
34%. Assume that all debt is...
Your company is thinking about acquiring another corporation. You have two choices; the cost of each...
Your company is thinking about acquiring another corporation.
You have
two choices; the cost of each choice is $250,000. You cannot
spend more
than that, so acquiring both corporations is not an option.
The
following are your critical data:
a. Corporation A:
1) Revenues = 100K in year one, increasing by 10% each year.
2) Expenses = 20K in year one, increasing by 15% each year.
3)
Depreciation Expense = 5K each year.
4) Tax Rate = 25%
5) Discount...
Bird's Eye Treehouses, Inc., a Kentucky company, has determined that a majority of its customers are...
Bird's Eye Treehouses, Inc., a Kentucky company, has determined
that a majority of its customers are located in the Pennsylvania
area. It therefore is considering using a lockbox system offered by
a bank located in Pittsburgh. The bank has estimated that use of
the system will reduce collection time by 2.5 days. Assume 365 days
a year.
Average number of payments per day
840
Average value of payment
$
790
Variable lockbox fee (per transaction)
$
0.20
Annual interest...
Bird's Eye Treehouses, Inc., a Kentucky company, has determined that a majority of its customers are...
Bird's Eye Treehouses, Inc., a Kentucky company, has determined
that a majority of its customers are located in the Pennsylvania
area. It therefore is considering using a lockbox system offered by
a bank located in Pittsburgh. The bank has estimated that use of
the system will reduce collection time by 2 days. Assume 365 days a
year.
Average number of payments per day
780
Average value of payment
$
730
Variable lockbox fee (per transaction)
$
.15
Annual interest...
Bird's Eye Treehouses, Inc., a Kentucky company, has determined that a majority of its customers are...
Bird's Eye Treehouses, Inc., a Kentucky company, has
determined that a majority of its customers are located in the
Pennsylvania area. It therefore is considering using a lockbox
system offered by a bank located in Pittsburgh. The bank has
estimated that use of the system will reduce collection time by 2
days.
Average number of payments per day
770
Average value of payment
$
720
Variable lockbox fee (per transaction)
$
.20
Annual interest rate on money market securities...
A relatively new company, Wine To End Whining, Inc., has determined they need to engage in...
A relatively new company, Wine To End Whining, Inc., has
determined they need to engage in a budgeting process as part of
their new strategic plan. The Company has asked you to provide the
following items for the months of January, February, and March of
2017: A) a Purchases Budget; B) a Cash Budget; C) a Budgeted Income
Statement; and D) a Budgeted Balance Sheet. They have provided you
with the planning document below and also, with their December 31,...
A relatively new company, Wine To End Whining, Inc., has determined they need to engage in...
A relatively new company, Wine To End Whining, Inc., has
determined they need to engage in a budgeting process as part of
their new strategic plan. The Company has asked you to provide the
following items for the months of January, February, and March of
2017: A) a Purchases Budget; B) a Cash Budget; C) a Budgeted Income
Statement; and D) a Budgeted Balance Sheet. They have provided you
with the planning document below and also, with their December 31,...
Bird's Eye Treehouses, Inc., a Kentucky company, has determined that a majority of its customers are...
Bird's Eye Treehouses, Inc., a Kentucky company, has determined
that a majority of its customers are located in the Pennsylvania
area. It therefore is considering using a lockbox system offered by
a bank located in Pittsburgh. The bank has estimated that use of
the system will reduce collection time by 2 days. Assume 365 days a
year. Average number of payments per day 780 Average value of
payment $ 730 Variable lockbox fee (per transaction) $ .15 Annual
interest rate...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Can you think of any negative social consequences that nanobots would have on society? Nanobots are...
- how do you foster an organization culture that characterized by open communication high performance and an...
- Question Three (Chapter Three): Review the slides here (Links to an external site.)Links to an external...
- Prove by induction: 1 + 1/4 + 1/9 +⋯+ 1/?^2 < 2 − 1/?, for all...
- What are positive and negative reinforcement? How are positive and negative reinforcement different? How are they...
- A pension fund manager is considering three mutual funds. The first is a stock fund, the...
- Consumer Behavior: provide arguments for why one could day that limitless choice is not a good...
ADVERTISEMENT