Scorecard Corp. is considering an acquisition of Rapid Routes Logistics. Scorecard Corp. estimates that acquiring Rapid...

 

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Scorecard Corp. is considering an acquisition of Rapid Routes Logistics. Scorecard Corp. estimates that acquiring Rapid Routes will result in incremental value for the firm. The analysts involved in the deal have collected the following information from the projected financial statements of the target company: Data Collected (Millions of dollars) (Millions of dollars) (Millions of dollars) Year 1 Year 2 Year 3 EBIT 14.0 16.8 21.0 Interest expense 3.0 3.3 3.6 Debt 33.0 39.0 42.0 Total net operating capital 113.3 115.5 117.7 Rapid Routes is a publicly traded company, and its market-determined pre-merger beta is 1.00. You also have the following information about the company and the projected statements: • Rapid Routes currently has a $18.00 million market value of equity and $11.70 million in debt. • The risk-free rate is 5% with a 7.10% market risk premium, and the Capital Asset Pricing Model produces a pre-merger required rate of return on equity rl, of 12.10%. • Rapid Routes's cost of debt is 7.00% at a tax rate of 40%. • The projections assume that the company will have a post-horizon growth rate of 6.00%. • urrent total net operating capital is $110.0 million, and the sum of existing debt and debt required to maintain a constant capital structure at the time of acquisition is $30 million. The firm has no nonoperating assets, such as marketable securities. With the given information, use the free cash flow to equity (FCFE) approach to calculate the following values involved in the merger analysis. (Note: Round your answer to two decimal places, but do not round intermediate calculations.) Value FCFE horizon value Value of FCFE Scorecard Corp. is considering an acquisition of Rapid Routes Logistics. Scorecard Corp. estimates that acquiring Rapid Routes will result in incremental value for the firm. The analysts involved in the deal have collected the following information from the projected financial statements of the target company: Data Collected (Millions of dollars) (Millions of dollars) (Millions of dollars) Year 1 Year 2 Year 3 EBIT 14.0 16.8 21.0 Interest expense 3.0 3.3 3.6 Debt 33.0 39.0 42.0 Total net operating capital 113.3 115.5 117.7 Rapid Routes is a publicly traded company, and its market-determined pre-merger beta is 1.00. You also have the following information about the company and the projected statements: • Rapid Routes currently has a $18.00 million market value of equity and $11.70 million in debt. • The risk-free rate is 5% with a 7.10% market risk premium, and the Capital Asset Pricing Model produces a pre-merger required rate of return on equity rl, of 12.10%. • Rapid Routes's cost of debt is 7.00% at a tax rate of 40%. • The projections assume that the company will have a post-horizon growth rate of 6.00%. • urrent total net operating capital is $110.0 million, and the sum of existing debt and debt required to maintain a constant capital structure at the time of acquisition is $30 million. The firm has no nonoperating assets, such as marketable securities. With the given information, use the free cash flow to equity (FCFE) approach to calculate the following values involved in the merger analysis. (Note: Round your answer to two decimal places, but do not round intermediate calculations.) Value FCFE horizon value Value of FCFE

Answer rating: 100% (QA)

Jear f Jear 2 Year 3 EBIT 190 168 20 Inderest Expensre 30 33 36 P BT 110 174 135 Tax 44 ... View the full answer