Intro It is December 2024. You work as a financial analyst for Merck & Co. and are tasked with the due diligence on the proposed acquisition of a biotech startup. You estimated the following cash flows for the startup: Expected project cash flow Year ($ million) (end of year) 2025 76.5 2026 114.75 2027 149.18 2028 179.01 2029 196.91 After 2029, cash flows are expected to grow by 3% per year. Based on the riskiness of your industry, you think that your weighted average cost of capital is 13%. The biotech firm has 5 million shares and bonds worth $120 million outstanding.

Intro It is December 2024. You work as a financial analyst for Merck & Co. and are tasked with the due diligence on the proposed acquisition of a biotech startup. You estimated the following cash flows for the startup: Expected project cash flow Year ($ million) (end of year) 2025 76.5 2026 114.75 2027 149.18 2028 179.01 2029 196.91 After 2029, cash flows are expected to grow by 3% per year. Based on the riskiness of your industry, you think that your weighted average cost of capital is 13%. The biotech firm has 5 million shares and bonds worth $120 million outstanding.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 1PA: Your company is planning to purchase a new log splitter for is lawn and garden business. The new...

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Suppose that the date is 1 January 2022, and you are considering making an investment in General Electric (NYSE: GE). You are given the following information and assumptions to assist you with your valuation analysis: FY2022 revenue (i.e., for the 12-month period from 1 January 2022 to 31 December 2022) is forecast to be $80 billion, compared to actual FY2021 revenue of $75 billion. EBIT, depreciation & amortization (D&A) and capital expenditure dedicated solely for new investments/projects (i.e., growth capital expenditure) is expected to remain fixed (as a percentage of total revenues) at 15%, 5% and 3% respectively. The level of operating working capital needed for GE’s ordinary business operations historically as well as in the future is equal to 1% of total revenues. GE currently has $75 billion in debt outstanding, $40 billion in cash on hand and 9 billion shares outstanding. Assume that GE faces an effective corporate tax rate of 25%. Assume that GE’s long-term…
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Your company is planning to purchase a new log splitter for its lawn and garden business. The new splitter has an initial investment of $204,000. It is expected to generate $30,000 of annual cash flows, provide incremental cash revenues of $125,080, and incur incremental cash expenses of $70,000 annually. What is the payback period and accounting rate of return (ARR)? Round your answers to 1 decimal place. Payback period fill in the blank 1 years ARR fill in the blank 2%