Question

In: Finance

Suppose SMG considers an acquisition that is expected to increase SMG’s free cash flow by $6...

Suppose SMG considers an acquisition that is expected to increase SMG’s free cash flow by $6 million the first year, and its contribution is expected to grow at 2.5% per year from then on. SMG has negotiated a purchase price of $66.25 million. SMG always adjusts its capital structure to maintain a constant debt-equity ratio of one. The acquisition has the same risk as SMG’s divisions, its corporate tax is 40%, its cost of debt is 5%, and its unlevered WACC is 7%.

a. Determine the net present value (NPV) of this deal via the WACC method?

b. Determine the net present value (NPV) of this deal using the APV method?

c. Determine the net present value (NPV) of this deal using the FTE method?

Solutions

Expert Solution

Only answering the first part (as per guideline), as it is not mentioned which part of the question should be answered.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Suppose a venture's first cash flow is expected in Year 6, and the cash flow is...
Suppose a venture's first cash flow is expected in Year 6, and the cash flow is expected to be 3,891,326. A comparable firm has earnings of 31,104,064 and a market cap of 412,501,981. Assuming a discount rate of 15%, find the present value (at Year 0) of the firm in do
Expected Operating Cash Flow = 25m Expected Free Cash Flow to the Firm = 20m Expected...
Expected Operating Cash Flow = 25m Expected Free Cash Flow to the Firm = 20m Expected Sustainable Growth Rate = 3% How should management decide whether its better to invest the companys cash flows to create future growth or to pay a dividend to ite shareholders?
A company's most recent annual Free Cash Flow is $180,000,000. Free cash flow is expected to...
A company's most recent annual Free Cash Flow is $180,000,000. Free cash flow is expected to grow by 15% per year for the next 10 years and then grow by 3% per year thereafter. Investors required rate of return is 11%. What is the current value of the stock? a. $11,300,755,080 b. $2,250,000,000 c. $5,404,011,121 d. $1,636,363,636
A company generated free cash flow of $57 million during the past year. Free cash flow is expected to increase 5% over the next year and then at a stable 2.9% rate in perpetuity thereafter
A company generated free cash flow of $57 million during the past year. Free cash flow is expected to increase 5% over the next year and then at a stable 2.9% rate in perpetuity thereafter. The company's cost of capital is 8.1%. The company has $434 million in debt, $39 million of cash, and 39 million shares outstanding. What's the value of each share?a. 4.8b. 8.3c. 5.6d. 17.8e. 19.4
Compare and contrast Free Cash Flow, Cash Flow (balance sheet to balance sheet) and CFO (6...
Compare and contrast Free Cash Flow, Cash Flow (balance sheet to balance sheet) and CFO (6 points)
A firm with no debt and no preferred stock is expected to have free cash flow...
A firm with no debt and no preferred stock is expected to have free cash flow of $46 million each year indefinitely. If investors require a 9% return on their equity, what is the value of the firm's equity?
A firm with no debt and no preferred stock is expected to have free cash flow...
A firm with no debt and no preferred stock is expected to have free cash flow of $76 million each year indefinitely. If investors require a 14% return on their equity, what is the value of the firm's equity?
Using: Free cash flow to equity (FCFE) approach Wellington Industries is considering an acquisition of Orator...
Using: Free cash flow to equity (FCFE) approach Wellington Industries is considering an acquisition of Orator Telecom Inc. Wellington Industries estimates that acquiring Orator will result in incremental value for the firm. The analysts involved in the deal have collected the following information from the projected financial statements of the target company. Data Collected (in millions of dollars) Year 1 Year 2 Year 3 EBIT $8.0 $9.6 $12.0 Interest expense 4.0 4.4 4.8 Debt 33.0 39.0 42.0 Total net operating...
6. The table below shows the projected free cash flows of an acquisition target. Estimate the...
6. The table below shows the projected free cash flows of an acquisition target. Estimate the following: a) Terminal value at the end of 2025 based on the perpetual growth equation with a 4% perpetual growth rate b) Maximum acquisition price (MAP) as of the end of 2020 at a 9% discount rate YEAR                                                               2021    2022   2023   2024   2025 FREE CASH FLOW ($ thousands)                  -$500      $83    $87    $89     $92 The Present Value of $1 Table (Table 3)...
Berzerk Motors is expected to have a free cash flow of $750,000 next year. Cash flows...
Berzerk Motors is expected to have a free cash flow of $750,000 next year. Cash flows are expected to grow at 18 percent per year for the next four years(years 2-5). After year 5, the free cash flow is projected to grow at 3.5 percent indefinitely. The firm currently has $3 million in debt, 500,000 shares outstanding, and a WACC of 10.24%. What is the value of Berzerk Motors? What is the price per share of the company’s stock?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT