Q6. You are analyzing the potential takeover of Buy Corp and have forecasted the firm will...

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Q6. You are analyzing the potential takeover of Buy Corp and have forecasted the firm will contribute the following 1 year after acquisition (including all synergies): EBIT $3.5 million New Debt of $6,500,000 at an interest rate of 10% per annum Depreciation and amoritaton expense of $310,000 Deferred taxes of $50,000 $1,000,000 increase in accounts receivable $250,000 increase in accounts payable $500,000 increase capital expenditures Assume the corporate tax rate is 40% a) Estimate the firm's free cash flow to equity next year (round to the nearest dollar) (4 marks) b) Estimate the firm's equity value in total (round to the nearest dollar) assuming that next year's free cash flow increases annually at 6% indefinitely. The firm has 400,000 shares outstanding. The appropriate beta is 1.3, the expected annual return on the market is 9% and the risk-free rate is 5%. (4 marks) c) Using the informatoin given in part (b) calculate the firm's equity value on a per share basis (round to the nearest cent). (2 marks) Q6. You are analyzing the potential takeover of Buy Corp and have forecasted the firm will contribute the following 1 year after acquisition (including all synergies): EBIT $3.5 million New Debt of $6,500,000 at an interest rate of 10% per annum Depreciation and amoritaton expense of $310,000 Deferred taxes of $50,000 $1,000,000 increase in accounts receivable $250,000 increase in accounts payable $500,000 increase capital expenditures Assume the corporate tax rate is 40% a) Estimate the firm's free cash flow to equity next year (round to the nearest dollar) (4 marks) b) Estimate the firm's equity value in total (round to the nearest dollar) assuming that next year's free cash flow increases annually at 6% indefinitely. The firm has 400,000 shares outstanding. The appropriate beta is 1.3, the expected annual return on the market is 9% and the risk-free rate is 5%. (4 marks) c) Using the informatoin given in part (b) calculate the firm's equity value on a per share basis (round to the nearest cent). (2 marks)