Question

In: Finance

ABC is considering purchasing a smaller chain, XYZ software. ABC’s financial analysts project that the merger...

ABC is considering purchasing a smaller chain, XYZ software. ABC’s financial analysts project that the merger will result in incremental net cash flows of $5.5 million in Year 1, $6.5 million in Year 2, $8.5 million in Year 3, and $15.5 million in year 4. Interest tax savings after the merger are estimated to be $1.8 million for each of the next 4 years. The expected cost of capital will be 10.5%, and the company expects to experience a normal growth of 6% starting at the beginning of the fifth year. XYZ’s outstanding debt is estimated to be $40 million, and the post-merger beta is estimated to be 1.50. The risk-free rate is 3.5 percent, and the market returns are 10 percent. What is the value of XYZ Software to ABC software? in excel spreadsheet please

Solutions

Expert Solution

jeff jeffy answered 8 months ago
Next > < Previous

Related Solutions

ABC is considering purchasing a smaller chain, XYZ software. ABC’s financial analysts project that the merger...
ABC is considering purchasing a smaller chain, XYZ software. ABC’s financial analysts project that the merger will result in incremental net cash flows of $5.5 million in Year 1, $6.5 million in Year 2, $8.5 million in Year 3, and $15.5 million in year 4. Interest tax savings after the merger are estimated to be $1.8 million for each of the next 4 years. The expected cost of capital will be 10.5%, and the company expects to experience a normal...
A regional restaurant chain, Club Finance Rocks (CFR), is considering purchasing a smaller chain, AccountingIsOkToo Sandwiches...
A regional restaurant chain, Club Finance Rocks (CFR), is considering purchasing a smaller chain, AccountingIsOkToo Sandwiches (AIOT). The following post-merger data for the AIOT is projected. The values below are in millions. After the fourth year, the free cash flows and the tax shields will both grow at a constant rate of 4%. AIOT has $50 million of debt and $60 million of non-operating assets. Current stock price of the AIOT is $16 per share, with 12 million shares outstanding....
ABC Corporation is considering an acquisition of XYZ. XYZ has a capital structure of 40% debt...
ABC Corporation is considering an acquisition of XYZ. XYZ has a capital structure of 40% debt and 60% equity, with a current book value of $20 million in assets. XYZ’s pre-merger beta is 1.46 and is not likely to be altered as a result of the proposed merger. ABC’s pre-merger beta is 1.12, and both it and XYZ face a 35% tax rate. ABC’s capital structure is 50% debt and 50% equity, and it has $24 million in total assets....
On August 15, 2014 XYZ Inc. made an investment by purchasing a call option on ABC...
On August 15, 2014 XYZ Inc. made an investment by purchasing a call option on ABC Inc common shares for $360. The notional value of the call option is 400 shares and the option price is $40 (Market price of ABC is $40). The option expires on 1/31/15. The following data applies with respect to the call option. Date                                    Market Price of ABC Shares                  Time Value of Call Option 9/30/14                                             $48/share                                                         $180 12/31/14                                           $46/share                                                         $65 1/15/15                                             $47/share                                                         $30 Prepare journal...
Two companies, ABC and XYZ, are considering entering into a swap. Company ABC can borrow at...
Two companies, ABC and XYZ, are considering entering into a swap. Company ABC can borrow at a fixed rate of 8.1% or, alternatively LIBOP + 1.3%. Company XYZ faces a fixed rate of 7.5% and a floating rate of LIBOR + 0.3%. a) Suppose that company ABC wants a floating rate loan, while company XYZ wants a fixed rate loan. Is there a basis for a swap? If so, set up the swap under the assumption that interest rate savings...
Richard Scott, CEO of XYZ Enterprises, is considering a merger with Empire Inc., which is led...
Richard Scott, CEO of XYZ Enterprises, is considering a merger with Empire Inc., which is led by CEO Mickey Thompson. The merger of their two firms will enable the creation of a very large diversified conglomerate, with businesses ranging from office supplies to sporting goods, industrial paints, consumer electronics, video games, and marine engines. Consultants from Boston Consulting Group have advised Scott and Thompson that the merger could create a great deal of value, because the new combined entity can...
ABC Ltd has gained control of XYZ Ltd by purchasing 80% of the share capital, while...
ABC Ltd has gained control of XYZ Ltd by purchasing 80% of the share capital, while only gaining some significant influence over Wan Ltd due to only holding a 20% share of the capital. Your Financial Controller has asked you to evaluate critically the differences between control and significant influence relating to the consolidation of financial statements and explain how a company may still control another entity even though it may not own a majority of the ordinary shares.
Company XYZ is considering project A. Project A requires an initial investment of $75,000.
Company XYZ is considering project A. Project A requires an initial investment of $75,000. It generates $35,000 each year for the coming 3 years. What is the discounted payback period for this project if the proper discount rate is 18%?
A company is considering undertaking a new project. The project will require purchasing a machine for...
A company is considering undertaking a new project. The project will require purchasing a machine for $250 today. The cost of the machine will be depreciated straight-line to zero over four years. Cash sales will be $230 per year for four years (from t=1 until t=4) and costs of goods sold will run $120 per year for these four years. At t=5 you sell the machine for $50. The firm has already spent $100 for R&D last year. The corporate...
Great Lakes Inc., a regional medical group practice, is considering purchasing a smaller group practice, Eastern...
Great Lakes Inc., a regional medical group practice, is considering purchasing a smaller group practice, Eastern Physicians, which has $20 million of debt at a cost of 8 percent. Great Lakes' analysts project that the merger will result in free operating cash flows of $2 million in Year 1, $4 million in Year 2, $5 million in Year 3, and $117 million in Year 4. (The Year 4 cash flow includes a terminal value of $107 million.) The acquisition would...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT