Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Financial Management Expert

Answer the following Question

Happy Times, Inc., wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe's Party Supply.

Happy Times currently has debt outstanding with a market value of $180 million and a YTM of 9 percent. The company's market capitalization is $420 million, and the required return on equity is 14 percent. Joe's currently has debt outstanding with a market value of $32.5 million.

The EBIT for Joe's next year is projected to be $16 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity.

Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe's has 2.05 million shares outstanding and the tax rate for both companies is 38 percent.

a. What is the maximum share price that Happy Times should be willing to pay for Joe's? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

After examining your analysis, the CFO of Happy Times is uncomfortable using the perpetual growth rate in cash flows. Instead, she feels that the terminal value should be estimated using the EV/EBITDA multiple. The appropriate EV/EBITDA multiple is 8.

b. What is your new estimate of the maximum share price for the purchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92751649

Have any Question?


Related Questions in Financial Management

Question spirituality is a fundamental and universal

Question : Spirituality is a fundamental and universal aspect of human existence and is a critical component in working with clients, groups, communities, etc. There is a vast diversity in spiritual beliefs and religious ...

Situationthe law affects the business environment and every

Situation The law affects the business environment and every single business and organization. These laws and regulations often come to light in current events as businesses find themselves represented in the press, eith ...

Please put the answers below each questionschapter 132

Please put the answers below each questions Chapter 13 2. Under what circumstances might the Fed's maximum employment goal conflict with its price stability goal? 3. How does monetary policy affect aggregate demand throu ...

Consider two companies united states steel x and facebook

Consider two companies: United States Steel (X) and Facebook (FB). Look at the profiles (financial statements for 2016) of each on yahoo finance and discuss the followings (you need to calculate these values yourself and ...

Discussion as an initial response to the discussion topic

Discussion As an initial response to the discussion topic please create a Power Point presentation of 5 slides plus the title slide that contains the main results of part 2 of the Research Project. These slides should in ...

Company x is an american manufacturing company getting

Company X is an American manufacturing company getting ready to start selling its products in Mexico. You are the manager of a team tasked with assessing the potential risks to the company as it gets ready to expand to a ...

Watch the video role morality link attached below in the

Watch the Video: Role Morality (Link attached below in the documnet) And answer the following questions: 1. Do you agree that a person should have one set of morals for family and church and another set for his or her em ...

Part 1 trade receivables1 for purposes of answering the

Part 1: Trade Receivables 1. For purposes of answering the questions in this part, only consider "Trade Receivables." a. What is the amount of Trade Receivables that customers owe Coors at the end of fiscal 2002? b. What ...

In red is the hypothesis you chose to write about use the

In red is the hypothesis you chose to write about. Use the hypothesis to write the research paper The Shadow Bank System If the shadow bank system is given a platform to develop, then it will provide a solution to the ba ...

Consumer behavior assignment - personality and

Consumer Behavior Assignment - Personality and Lifestyles 1. What are some products that make their appeals primarily to the id? What are some products that make their appeals to the superego? Do products make an appeal ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As