In summer 2015, Smidgeon Industries was evaluating whether to purchase one of its suppliers. The supplier, Carswell
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Next, Smidgeons management team looked at a group of similar firms and estimated Carswells cost of capital to be 15%. Finally, the team estimated that Carswell would be worth approximately six times its year 5cash flow in five years.
a. What is your estimate of the enterprise value of Carswell?
b. What is the value of the equity of Carswell if the acquisition goes through, and Smidgeon borrows $ 2.4 million and finances the remainder using equity?
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Related Book For
Valuation The Art and Science of Corporate Investment Decisions
ISBN: 978-0133479522
3rd edition
Authors: Sheridan Titman, John D. Martin
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