Question
In: Finance
On October 20, 2020, Kevin Mason, President of Tropicane Juice is reviewing the financial statements of...
On October 20, 2020, Kevin Mason, President of Tropicane Juice is reviewing the financial statements of Sunnydee, a potential acquisition candidate for the company. Tropicane is an American company, which produces and distributes juice throughout North America. It is in juice production and is interested in getting into the Canadian market. Sunnydee is a Canadian company that produces similar juice products and sells these across Canada. Tropicane is a public company and Sunnydee is a private company. Sunnydee is owned by the local area farmers and was originally started as a co-operative. Of the 1,000,000 shares outstanding, 600,000 are owned by the founder of the company, Mr. S. The rest are owned by various employees. Sunnydee has a perpetual debt with a par value of $5 million and coupon rate of 6 percent. However, interest rates have decreased and now the debt has a 4 percent yield-to-maturity. Annual before-tax before-interest operating cash flows for the year just ended were $3 million. The corporate tax rate was 20 percent. Assume perpetual operating cashflows for Sunnydee’s future cashflows. Tropicane has return on equity of 12.24%, debt-to-equity ratio of 40%, and yield to maturity of 3% on its outstanding debt.
a) What do you think is the maximum acquisition price that Mr. Mason is willing to pay for acquiring Sunnydee?
b) Compute weighted average cost of capital for Sunnydee.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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Financial Statements The transactions and integrated financial statement framework for Terry Mason for February 20Y4 appear...
Financial Statements
The transactions and integrated financial statement framework
for Terry Mason for February 20Y4 appear below:
Terry Mason organized The Fifth Season at the beginning of
February 20Y4. During February, The Fifth Season entered into the
following transactions:
Terry Mason invested $32,375 in The Fifth Season in exchange for
capital stock.
Paid $4,620 on February 1 for an insurance premium on a 1-year
policy.
Purchased supplies on account, $3,900.
Received fees of $58,970 during February.
Paid expenses as follows:...
Financial Statements The transactions and integrated financial statement framework for Terry Mason for February 20Y4 appear...
Financial Statements The transactions and integrated financial
statement framework for Terry Mason for February 20Y4 appear below:
Terry Mason organized The Fifth Season at the beginning of February
20Y4. During February, The Fifth Season entered into the following
transactions: Terry Mason invested $27,750 in The Fifth Season in
exchange for capital stock. Paid $6,300 on February 1 for an
insurance premium on a 1-year policy. Purchased supplies on
account, $2,460. Received fees of $61,110 during February. Paid
expenses as follows:...
The directors of KMSD, a limited liability company, are reviewing the company’s draft financial statements for...
The directors of KMSD, a limited liability company, are
reviewing the company’s draft financial statements for the year
ended 30 June 2015. The following material matters are under
discussion: a. After the balance sheet date one of the company’s
factories was seriously damaged by fire. Insurance will only cover
part of the loss suffered. The company’s going concern status is
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Mason Company has prepared consolidated financial statements for the current year and is now gathering information...
Mason Company has prepared consolidated financial statements for
the current year and is now gathering information in connection
with the following five operating segments it has identified.
Company
Total
Books
Computers
Maps
Travel
Finance
Sales to outside parties
$
1,547
$
121
$
696
$
416
$
314
$
0
Intersegment sales
421
24
240
39
118
0
Interest income—external
97
60
0
0
0
37
Interest income—intersegment loans
147
0
0
0
0
147
Assets
3,398
206
1,378
248...
Mason Company has prepared consolidated financial statements for the current year and is now gathering information...
Mason Company has prepared consolidated financial statements for
the current year and is now gathering information in connection
with the following five operating segments it has identified.
Company
Total
Books
Computers
Maps
Travel
Finance
Sales to outside parties
$
1,669
$
163
$
730
$
439
$
337
$
0
Intersegment sales
511
35
274
50
152
0
Interest income—external
119
71
0
0
0
48
Interest income—intersegment loans
158
0
0
0
0
158
Assets
3,610
240
1,433
282...
Mason Company has prepared consolidated financial statements for the current year and is now gathering information...
Mason Company has prepared consolidated financial statements for
the current year and is now gathering information in connection
with the following five operating segments it has identified.
Company
Total
Books
Computers
Maps
Travel
Finance
Sales to outside parties
$
1,755
$
196
$
763
$
449
$
347
$
0
Intersegment sales
575
46
295
61
173
0
Interest income—external
141
82
0
0
0
59
Interest income—intersegment
loans
169
0
0
0
0
169
Assets
3,760
261
1,488
303...
An accounting intern for a local CPA firm was reviewing the financial statements of a client in the electronics industry.
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An accounting intern for a local CPA firm was reviewing the financial statements of a client in the electronics industry.
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When reviewing the financial statements for Bent Corp you were surprised by the significant losses...
When reviewing the financial statements for Bent Corp you were
surprised by the significant losses they incurred in the previous
year. Although not your best investment, they always provided
adequate returns. Further investigation identified the two main
reasons for the loss. The first was settlement of a significant
lawsuit brought against them for patent infringement. As part of
the settlement, Bent can continue using the patented process
without further cost. The second significant cost was that
equipment used in...
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