ABC Holdings Corporation will be acquiring 100% ownership of XYZ Corporation. The latter currently has annual returns of P1,180,000, a required rate of return of 16%, and a remaining business life of 3 years. If ABC Holding Corporation acquires XYZ, this life will be extended to 10 years but its operating risk will also increase. The required rate of return on XYZ would become 17%. What is the value of control that ABC sees in acquiring X
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- Allan Holdings Corporation will be acquiring 100% ownership of Mark Corporation. The average annual historical return of the latter is 25% while the required rate of return was 23%. Mark will continue to have 5 years left to operate and expects earnings to accrue evenly. *If the current value of the equity is P5,000,000 and the resulting acquisition would lower the required rate of return to 20%, what would the value of control over Mark be for Allan Corporation?EFG Holdings Corporation will be acquiring 100% ownership of HIJ Corporation. The latter currently has an equity value of P3,600,000, a Jrequired rate of return of 16%, excess earnings of 2%, and a remaining business life of 5 years. If EFG Holding Corporation acquires HIJ, this life will be extended by 15 years but its operating risk will also increase. The required rate of return on HIJ would become 20%. If the agreed price is P4,000,000, how much would the value of control over HIJ which EFG Corporation would still avoid be?Kaplan Ltd is contemplating the acquisition of Baron Incorporation. The values of the two companies as separate entities are GH¢ 30 million and GH¢ 10 million, respectively. Kaplan estimates that by combining the two companies, it will reduce marketing and administration cost by GH¢ 700,000 per year in perpetuity. Kaplan can either pay GH¢ 15 million cash for Baron Inc, or offer Baron a 50% holding in the combined firm. The opportunity cost of capital is 10%. What is the gain from merger? What is the cost of the cash offer? What is the cost of the stock offer? What is the NPV of the acquisition under the cash offer? What is the NPV under the stock offer? Discuss five (5) defense mechanisms that target firms should be allowed to put in place to resist possible takeovers
- Kaplan Ltd is contemplating the acquisition of Baron Incorporation. The values of the two companies as separate entities are GH¢ 30 million and GH¢ 10 million, respectively. Kaplan estimates that by combining the two companies, it will reduce marketing and administration cost by GH¢ 700,000 per year in perpetuity. Kaplan can either pay GH¢ 15 million cash for Baron Inc, or offer Baron a 50% holding in the combined firm. The opportunity cost of capital is 10%. Required: 1. What is the NPV of the acquisition under the cash offer? 2. What is the NPV under the stock offer? 3. Discuss five (5) defense mechanisms that target firms should be allowed to put in place to resist possible takeoversNewCo is trying to fully acquire OldCo in an all cash offer. NewCo will assume all the debt of OldCo as part of the acquisition. The expected synergies from the acquisition are $700 million. Before the transaction OldCo has 25 million shares outstanding, a share price of $65, and outstanding debt of $500 million (no excess cash). Is the following statement true or false? If NewCo offers $65 per share of OldCo and the acquisition is successful, the shareholders of NewCo will have captured the full value of the synergies of this transaction. Pick One: True FalseCorporation A is deciding on an acquisition. Corporation A would buy all shares of corporation B, for a total of 500,000 shares of B. Currently, corporation B is expected to pay a constant dividend forever of $12 per share. The market price of B shares reflects these expectations, and the required rate of return is 4%. A can buy B shares at their current market price, and management expects to be able to exploit synergies between the two corporations and increase revenues. Thus, according to A’s management, if the acquisition takes place the dividend per share for next year is expected to be $12, but dividends are then expected to grow forever at a rate of 3% per year. The required rate of return on stock B would stay unchanged at 4%. What is the NPV of the acquisition? .
- Hastings Corporation is interested in acquiring Vandell Corporation. Hastings Corporation estimates that if it acquires Vandell Corporation, synergies will cause Vandell’s free cash flows to be $2.3 million, $2.9 million, $3.4 million, and $3.79 million at Years 1 through 4, respectively, after which the free cash flows will grow at a constant 5% rate. Hastings plans to assume Vandell’s $10.29 million in debt (which has a 7.4% interest rate) and raise additional debt financing at the time of the acquisition. Hastings estimates that interest payments will be $1.6 million each year for Years 1, 2, and 3. After Year 3, a target capital structure of 30% debt will be maintained. Interest at Year 4 will be $1.431 million, after which the interest and the tax shield will grow at 5%. Vandell currently has 1.5 million shares outstanding and a target capital structure consisting of 30% debt; its current beta is 1.10 (i.e., based on its target capital structure). Vandell and Hastings each have a…Orilla Ltd is considering expansion by acquiring Norioll Ltd. The market value of the equity in Oriolla is $ 126 million and Norioll is $ 21 million. The takeover is expected to increase in after-tax operating cash flows of $ 3 million in perpetuity. Orilla is considering a cash offer of $ 29.4 million to Norioll shareholders for all their shares OR issue new shares of Orilla to Norioll so that they will own 20 % of the combined entity after the merger. The cost of capital for both companies is 12 % a)What is the gain in present value terms for the merger? b) What are the cost of the cash offer and share offer to Oriolla? c) What is the NPV of the acquisitions from Oriolla's perspective of the cash offer and the share offer?Tom Corporation is considering the acquisition of Jerry Corporation. Jerry Corporation has free cash flows to debt and equity holders of $3,750,000. If Tom Corporations acquires Jerry Corporation, Jerry will reduce operating costs by $1,500,000. This will increase free cash flow to $4,900,000. Assume that cash flows occur at year-end and the weighted average cost of capital is 9%. a. What is the value of Jerry Corporation without a merger? o. What is the value of Jerry Corporation with the merger?
- Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.6%. Assume that the risk-free rate of interest is 6% and the market risk premium is 4%. Both Vandell and Hastings face a 30% tax rate. Vandell's beta is 1.35. Hastings estimates that if it acquires Vandell, interest payments will be $1,600,000 per year for 3 years. The free cash flows are supposed to be $2.3 million, $2.8 million, $3.3 million, and then $3.70 million in Years 1 through 4, respectively. Suppose Hastings will increase Vandell's level of debt at the end of Year 3 to $34.2 million so that the target capital structure will be 45% debt. Assume that with this higher level of debt the interest rate would be 8.5%, and assume that interest payments in Year 4 are based on the new debt level from the end of Year 3 and new interest rate. Free cash flows and tax shields are projected…Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.6%. Assume that the risk-free rate of interest is 6% and the market risk premium is 4%. Both Vandell and Hastings face a 30% tax rate. Vandell's beta is 1.35. Hastings estimates that if it acquires Vandell, interest payments will be $1,600,000 per year for 3 years. The free cash flows are supposed to be $2.3 million, $2.8 million, $3.3 million, and then $3.70 million in Years 1 through 4, respectively. Suppose Hastings will increase Vandell's level of debt at the end of Year 3 to $34.2 million so that the target capital structure will be 45% debt. Assume that with this higher level of debt the interest rate would be 8.5%, and assume that interest payments in Year 4 are based on the new debt level from the end of Year 3 and new interest rate. Free cash flows and tax shields are projected to…Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.4%. Assume that the risk-free rate of interest is 3% and the market risk premium is 5%. Both Vandell and Hastings face a 30% tax rate. Vandell's beta is 1.20. Hastings estimates that if it acquires Vandell, interest payments will be $1,600,000 per year for 3 years. The free cash flows are supposed to be $2.4 million, $2.7 million, $3.3 million, and then $3.82 million in Years 1 through 4, respectively. Suppose Hastings will increase Vandell's level of debt at the end of Year 3 to $29.7 million so that the target capital structure will be 45% debt. Assume that with this higher level of debt the interest rate would be 8.0%, and assume that interest payments in Year 4 are based on the new debt level from the end of Year 3 and new interest rate. Free cash flows and tax shields are projected to…