Consider the following information for two firms involved, Ask an Expert

Finance

Consider the following information for two firms involved in a merger:

	Bidder	Target
Revenues	$1,500	$450
Expected EB1T next year	$500	$100
Tax rate	30%	30%
Beta (Levered)	1	1
Debt to capital ratio	15%	15%
Cost of equity	8.00%	8.00%
Pre-tax cost of debt	5.00%	5.00%
Expected growth rate (& Risk free rate)	2%	2%
Invested capital	$1,000.00	$500.00

What is the stand-alone value of the target? Hint: assume reinvestments are consistent with the fundamental growth rate, RR = g/ROC

A. $1,546 B. $924 C. $1,052 D. $1,127 9.

Now, suppose that the motivation for this merger is that the bidder believes that due to cost synergies the target's operating margin will increase by 25% (and so expected EBIT next year will increase). The target will increase reinvestments so that the new reinvestment rate is still consistent with the fundamental growth rate. If the other aspects of the target do not change, what is the post-merger value of the target?

A. $1,238 B. $1,455 C. $987 D. $1,364

View complete question

Financial Management, Finance

Category:- Financial Management
Reference No.:- M92829994

Have any Question?Write your Review or question?

Related Questions in Financial Management

Unit 3 dbthe president of eec recently called a meeting to

Unit 3 DB The President of EEC recently called a meeting to announce that one of the firm's largest suppliers of component parts has approached EEC about a possible purchase of the supplier. The President has requested t ...

International business letterabout frac34 of a page to one

International business Letter About ¾ of a page to one full page business letter (formatting as researched culture may dictate) + several paragraphs of rationale One of the great things about entering a field under the s ...

1 a explain what is meant by the term intermediation and

1. a. Explain what is meant by the term intermediation and identify and explain two types of intermediation provided by financial institutions. b. Give an example of a security issued by a financial institution and of a ...

Deliverable length 10-12 pages body of paper excluding

Deliverable Length: 10-12 pages (body of paper, excluding title page, abstract, references and appendices, if any) Comprehensive Analysis of a Fortune 500 Company For this Individual Project you will analyze publicly ava ...

Assignment 11set up an amortization schedule in excel that

Assignment 1 1. Set up an amortization schedule in Excel that caters to possible prepayments (or excess payments). The loan details are: $38,500, 6.5% APR, 5 year loan with Monthly payments. Show, on the spreadsheet, the ...

As we learned about in our lecture there are three types of

As we learned about in our lecture, there are three types of exercise: Aerobic exercises, e.g. running, cycling, walking, and skiing, are performed for longer intervals and require oxygen. Aerobic exercise primarily uses ...

Materialinstruments with various measurement scales

Material Instruments with Various Measurement Scales Worksheet Describe in no more than 350 words a business situation of your choice where market research can influence decision making. Create six questions for a questi ...

In the land of free trade the public does not view all

In the land of free trade, the public does not view all industries as equal. Do you believe that is ethical? Do you believe that some industries are unfairly targeted? Should it be consumers' choice to partake in product ...

Module 2 - slpstock and bond valuationfor your second slp

Module 2 - SLP STOCK AND BOND VALUATION For your second SLP assignment, continue to do research on the company you chose to write about for your Module 1 SLP. This time you will be doing research about the valuation of t ...

Management control systems and national cultures and

Management Control Systems and National Cultures and Corporate Social Responsibility o What steps, if any, is Amazon taking to be sensitive to the national culture. o What is Amazon doing with regard to Corporate Social ...

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

Recent Questions

Ask Financial Management Expert