Calculate the value of tax shields (Vtxa) 2.Find the value of unlevered cost of Equity (Ku) You
Fantastic news! We've Found the answer you've been seeking!
Question:
2.Find the value of unlevered cost of Equity (Ku)
Transcribed Image Text:
You are given the following assumptions for Firm A. Assume that the firm is going into leveraged buyout and the market value debt and equity levels are shown below. Assume from year 6 and onward, the debt level remains constant at $40 million, and equity level constant at $120 million, cost of debt (ka) constant at 6%, and levered cost of equity (ke) constant at 16%. Use the Adjusted Present Value model and the appropriate assumption for kixa to find the value of firm (V). (Round to 4 decimal places, e.g., 1.2345.) (30 points total) ROIC Growth (g) WACC Given 5-year Forecasting Horizon, Corporate tax rate = 35%, NOPLAT at time 1 = $55M, Year 1-5 (%) 20 16 14 Depreciation at time t = NOPLAT at time t x 10%, and Net investment at time t = (g/ROIC) Debt (SM) Equity (SM) Kd (%) Ke (%) Year 0 Year 1 40 80 120 120 8 14 18 24 NOPLAT,+ Depreciation Year 2 Year 3 Year 4 70 50 120 120 12 23 60 120 10 22 9 20 Year 6 and after (%) 12 3 12 Year 5 Year 6 40 40 120 120 6 16 2 8 18 You are given the following assumptions for Firm A. Assume that the firm is going into leveraged buyout and the market value debt and equity levels are shown below. Assume from year 6 and onward, the debt level remains constant at $40 million, and equity level constant at $120 million, cost of debt (ka) constant at 6%, and levered cost of equity (ke) constant at 16%. Use the Adjusted Present Value model and the appropriate assumption for kixa to find the value of firm (V). (Round to 4 decimal places, e.g., 1.2345.) (30 points total) ROIC Growth (g) WACC Given 5-year Forecasting Horizon, Corporate tax rate = 35%, NOPLAT at time 1 = $55M, Year 1-5 (%) 20 16 14 Depreciation at time t = NOPLAT at time t x 10%, and Net investment at time t = (g/ROIC) Debt (SM) Equity (SM) Kd (%) Ke (%) Year 0 Year 1 40 80 120 120 8 14 18 24 NOPLAT,+ Depreciation Year 2 Year 3 Year 4 70 50 120 120 12 23 60 120 10 22 9 20 Year 6 and after (%) 12 3 12 Year 5 Year 6 40 40 120 120 6 16 2 8 18
Expert Answer:
Answer rating: 100% (QA)
To calculate the value of tax shields Vtxa we need to multiply the debt level by the corporate tax r... View the full answer
Related Book For
Valuation The Art and Science of Corporate Investment Decisions
ISBN: 978-0133479522
3rd edition
Authors: Sheridan Titman, John D. Martin
Posted Date:
Students also viewed these finance questions
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
Flowmaster Forge Inc. is a designer and manufacturer of industrial air-handling equipment that is a wholly owned subsidiary of Howden Industrial Inc. Howden is interested in selling Flowmaster to an...
-
You are given the following information: In addition, the value of equity for firm A equals the value of equity for firm B, and the variance of returns for firms A and B are also equal. Using a...
-
Solve the problem. Jake Dowell has total fixed monthly expenses of $1367 and his gross monthly income is $3861. What is his debt-to-income ratio? Round to the nearest percent. ? 3% o 4% o 28% o 35%
-
Wolfram Alpha is a computational knowledge engine that has the capacity to provide answers to the questions you ask. First, you should review the video and links on the Wolfram Alpha Tour page...
-
Repeat the preceding two exercises, modifying your code to include runtime checking of array subscript bounds.
-
Assuming they have the same (positive) expected rate of return, which of the following investments should be cheapest? a. One that promises to pay you $100 in five years. b. One that promises to pay...
-
Deluca Solutions Inc. is an Ontario- based manufacturer. The company is listed on the TSX, but the family of founder David Deluca retains control through multiple- voting shares. Deluca undertook...
-
UNIT RECONCILIATION: Quantity Schedule Beginning Work in Process 200,000 Started into Production 400,000 Total Units into Production 600,000 Equivalent Units Calculations: Conversion Direct Materials...
-
A woman wishes to sell a car within the next 4 weeks. She expects to receive one bid or offer each week from a prospective buyer. The weekly offer is a random variable, which has the following...
-
For both U.S. Water (blue curve) and Martin Products (red curve) the expected return is 10%. However, the spread of possible outcomes for U.S. Water is "tighter" (i.e., closer to the expected return...
-
Tyler Champs Corp. uses activity-based costing to account for its motorcycle manufacturing process. Company managers have identified three supporting manufacturing activities: inspection, machine...
-
For its top managers, Countrywide Travel formats its income statement as follows: Countrywides relevant range is between sales of \($251,000\) and \($365,000\). Requirements 1. Calculate the...
-
Consider the success factors listed in Table 7.5 is it worth undertaking SISP without top management involvement? Table 7.5 Success factors in SISP Rank Success factor order Respondents Primary Sum...
-
Cooper Tire Rubber Company claims to be the fourth-largest tire manufacturer in North America. Goodyear Tire & Rubber Company is the largest tire manufacturer in North America. The following...
-
A researcher wants to study the effects of sleep deprivation on motor skills. Eighteen people volunteer for the experiment: Jake, Arya, Xavier, Nyla, Shaniece, Chen, Juan, Hana, Nia, Ansel, Liam,...
-
3. Cul de los siguientes probablemente sera ms perjudicialpara la razn circulante de una empresa si esa razn es actualmente2? a. Cobrar el pago de una cuenta por cobrar b. Vender valores 1 answer
-
Juanita owns a home in Richardson, TX. She purchases a Homeowners Policy (HO-3) from Farm State Ins. Co. The policy provides $100,000 in liability coverage (coverage E) and $5,000 in Med Pay coverage...
-
Pontiac Producing Company (PPC) is a domestic producer of natural gas. The firm is considering the purchase of some gas- producing property in the Bakin Shale located in North Dakota. The property...
-
Prepare a pro forma income statement and balance sheet for Webb Enterprises Where revenues are expected to grow by 20% in 2016. Make the following assumptions in making your forecast of the firms...
-
Opex Capital is a small investment advisory firm located in Portland, Oregon, that has been hired by Winston Winery to estimate the value of Hilco Wines. Hilco is a small winery that is being...
-
Data for the Frank B. Robinson Company are presented in PI2-5B. Further analysis reveals the following. 1. Accounts payable pertain to merchandise suppliers. 2. All operating expenses except for...
-
P12-8B Data for Bruce Willis Company is presented in P12-7B. Further analysis reveals the following. 1. Accounts payable relates to merchandise creditors. 2. All operating expenses, except...
-
The financial statements of Bruce Willis Company appear below. Additional information: 1. Plant assets were sold at a sales price of \($37,500\). 2. Additional equipment was purchased at a cost of...
Study smarter with the SolutionInn App