The Fastline Logistics Corporation is expected to have the following post-merger FCFF(Free Cash Flow to Firm). In the fifth year after the acquisition, the firm is expected tostabilize in a constant growth state with g=2.6% for the foreseeable future. The marginaltax rate faced by the firm after the merger will be 21%. The firm's cost of commonequity has been estimated as 14.5% while the firm's WACC is 6.3%. The firm has nononoperating assets.FCFFEstimated InterestExpenseWhat is the value of the firm?Year One$14 mil.$9 mil.Answer:Year Two$16 mil.$7 mil.Year Three$18 mil.$5 mil.Report your answer in millions of dollars rounded to 1 decimal place.Year Four$21 mil.$ 3 mil.

Terminal value is calculated as follows:-Terminal value = whereC= cash flowsg= growth rater=…

Answered: Logistics Corporation is expected to…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose that Rose Industries is considering the acquisition of another firm in its industry for $137 million. The acquisition is expected to increase Rose's free cash flow by $5 million the first year, and this contribution is expected to grow at a rate of 4% every year thereafter. Rose currently maintains a debt to equity ratio of 1, its corporate tax rate is 21%, its cost of debt rD is 6%, and its cost of equity rE is 10%. Rose Industries will maintain a constant debt-equity ratio for the acquisition. The Free Cash Flow to Equity (FCFE) for the acquisition in year O is closest to ($ Million) (2 decimal places):
Cuppy World is considering purchasing a competitor, Cupcake. Projected cash flows as a result of the merger are: Year 1, P1,450,000; Year 2, P1,750,000; Year 3, P2,000,000; Year 4, P2,500,000. In addition, Cupcake's year4 cash flows are expected to grow at a constant rate of 6% after year 4. Cupcake's post-merger beta is estimated to be 1.2 and its post-merger tax rate is 40%. The risk-free rate is 8% and the market risk premium is 4%. 1. Compute for the maximum bid price that Cuppy World can offer in the acquisition. 2. How much is the net advantage/disadvantage to Cuppy World if it acquires Cupcake's 10,000,000 shares at the current market price of P9?
Barnette Inc.'s free cash flows are expected to be unstable during the next few years while the company undergoes restructuring. However, FCF is expected to be $37.42 million in Year 5, i.e., FCF at t = 5 equals $37.42 million, and the FCF growth rate is expected to be constant at 4.74% beyond that point. If the weighted average cost of capital is 11%, what is the horizon value (in millions) at t = 5?
Cake World is considering purchasing a competitor, Cupcake. Projected cash flows as a result of the merger are: Year1, P1,450,000; Year2, P1,750,000; Year3, P2,000,000; Year4, P2,500,000. In addition, Cupcake's year4 cashflows are expected to grow at a constant rate of 6% after year 4. Cupcake's post-merger beta is estimated to be 1.2 and its post-merger tax rate is 40%. The risk-free rate is 8% and the market risk premium is 4%. Compute for the maximum bid price that Cake World can offer in the acquisition
Suppose that Portsea Inc. is thinking about acquiring a firm in its industry for $150 million. The acquisition is expected to increase Portsea's free cash flow by $20 million in the first year, and this contribution is expected to grow at a rate of 3% every year thereafter. Assume that Portsea currently maintains a debt-to-equity ratio of 0.80, its corporate tax rate is 30%, its cost of debt is 4%, and its cost of equity is 14% . Further assume that Portsea will maintain a constant debt - equity ratio for the acquisition. What is the free cash flow to equity (FCFE) for the acquisition in year 0 ?
CUPPY is considering purchasing a competitor, Cupcake2. Projected cash flows as a result of the merger are: Year1, P1,450,000; Year2, P1,750,000; Year3, P2,000,000; Year4, P2,500,000. In addition, Cupcake2's year4 cash flows are expected to grow at a constant rate of 6% after year 4. Cupcake's post-merger beta is estimated to be 1.2 and its post-merger tax rate is 40%. The risk-free rate is 8% and the market risk premium is 4%. How much is the net advantage/disadvantage to CUPPY2 if it acquires Cupcake2's 10,000,000 shares at the current market price of P9
Atlas Corporation wants to determine the optimal level of current assets that should be kept in the next year. The company is currently undergoing expansion, after which sales are expected to increase approximately by PKR 1 million. The company wants to maintain a 40% equity ratio and its total fixed assets are of PKR 1 million. Atlas’s interest rate is currently 8% on both short-term and longer-term debt (which the firm uses in its permanent structure). The company must choose between three strategies and decide which one is better. (1) a lean and mean policy where current assets would be only 35% of projected sales, (2) a moderate policy where current assets would be 40% of sales, and (3) a lenient policy where current assets would be 50% of sales. Earnings before interest and taxes should be 10% of total sales, and the federal-plus-state tax rate is 35%. What is the expected return on equity under each current asset level? (Solved) In this problem, we assume that expected sales are…
Atlas Corporation wants to determine the optimal level of current assets that should be kept in the next year. The company is currently undergoing expansion, after which sales are expected to increase approximately by PKR 1 million. The company wants to maintain a 40% equity ratio and its total fixed assets are of PKR 1 million. Atlas’s interest rate is currently 8% on both short-term and longer-term debt (which the firm uses in its permanent structure). The company must choose between three strategies and decide which one is better. (1) a lean and mean policy where current assets would be only 35% of projected sales, (2) a moderate policy where current assets would be 40% of sales, and (3) a lenient policy where current assets would be 50% of sales. Earnings before interest and taxes should be 10% of total sales, and the federal-plus-state tax rate is 35%. What is the expected return on equity under each current asset level? In this problem, we assume that expected sales are…
Barnette Inc.'s free cash flows are expected to be unstable during the next few years while the company undergoes restructuring. However, FCF is expected to be $42 million in Year 5, i.e., FCF at t = 5 equals $47 million, and the FCF growth rate is expected to be constant at 8% beyond that point. If the weighted average cost of capital is 13.2%, what is the horizon value (in millions) at t = 5? (Round your answer to 2 decimal places.)
Alfa Inc company is targeted for merger. In the present, the revenues of the company are $10 mil and it is forecast that in the next years it will increase by 10% each year. The operating expenses are $8 mil, which are expected to grow with the same growth rate as the revenues. Depreciation is $500,000 and is estimated to increase by $50,000/year. The investment needs (CAPEX) are $200,000 each year, and the short term financing needs (NWC) are estimated at 2% of turnover. The company has $1 mil in net debts, at an interest rate of 4.5%. The risk-free rate for government bonds is 4.5%, the market risk premium is 6% and beta coefficient is 1.5. The D/E ratio is 0.5After the merger, the D/E ratio will be 0.35 taking into account the repayment of loans forecasted by the acquirer. Net debt = 700,000 after the deal b) Will the company record a financial synergy. Compute the value of the synergy. c) $10 mil will be a good price for the deal?
Phosfranc Inc. is valuing the equity of a company using the free cash flow from equity, FCFE, approach and has estimated that the FCFE in the next three years will be $6.25, $7.70, and $8.36 million respectively. Beginning in year 4, the company expects the cash flows to increase at a rate of 4 percent per year for the indefinite future. It is estimated that the cost of equity is 12 percent. What is the value of equity in this company? (Do not round intermediate computations. Round final answer to the nearest million.) A) $77 million B) $95 million C) $109 million D) $60 million
Wild Berry (WB) will remain in business for one more year. At the end of next year, the firm will generate a liquidating cash flow of S370M in a boom year and S150M in a recession year; both states are equally likely. The cost of equity for the unlevered firm is rU = 10%. The firm's outstanding debt matures in a year and has amarket (and book) value of S150M today. The interest payment on this debt is S15M at the end of next year. The corporate tax is ?c = 35%. Corporate taxes is the only relevant market imperfection. 23. What s WB's value as an unlevered firm (VU )2 (A)5 236.4M (8)S 260.0M (€)5336.4M (D) $370.0M

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