Sleep Tight is acquiring Restful Inns for $52,500 in cash. Sleep Tight has 3,000 shares of...

Transcribed Image Text:

Sleep Tight is acquiring Restful Inns for $52,500 in cash. Sleep Tight has 3,000 shares of stock outstanding at a market price of $38 a share. Restful Inns has 2,100 shares of stock outstanding at a market price of $24 a share. Neither firm has any debt. The incremental value of the acquisition is $1,700. What is the price per share of Sleep Tight after the acquisition? The following information applies to the next five questions. Magiclean, Corporation is considering an acquisition of Dustvac, Company. Dustvac, has a capital structure of 60% debt and 40% equity, with a current book value of $10 million in assets. Dustvas s pre-merger beta is 1.36 and is not likely to be altered as a result of the proposed merger. Magiclean's pre-merger beta is 1.02, and both it and Dustvac, face a 40% tax rate. Magiclean's capital structure is 50% debt and 50% equity, and it has $24 million in total assets. The net cash flows from Dustvac available to Magiclean's stockholders are estimated at $4.0 million for each of the next three years and a terminal value of $23.0 million in Year 4. Additionally, new debt issued by the combined firm would yield 10% after-tax, and the cost of equity is estimated at 12.59%. Currently, the risk-free rate is 6.0% and the expected market return is 14.88%. 1) What is the merged firm's WACC? I 2) What is the merged firm's new beta? 3) What is the appropriate discount rate Magiclean, should use to discount the equity cash flows from Dustvac? 4) What is the present value (to the nearest thousand) of the Dustvac, cash inflows to Magiclean? 5) If the acquisition price of Dustvac, is 185% of Dustvas's current book value of assets, should Magiclean proceed with the acquisition? Sleep Tight is acquiring Restful Inns for $52,500 in cash. Sleep Tight has 3,000 shares of stock outstanding at a market price of $38 a share. Restful Inns has 2,100 shares of stock outstanding at a market price of $24 a share. Neither firm has any debt. The incremental value of the acquisition is $1,700. What is the price per share of Sleep Tight after the acquisition? The following information applies to the next five questions. Magiclean, Corporation is considering an acquisition of Dustvac, Company. Dustvac, has a capital structure of 60% debt and 40% equity, with a current book value of $10 million in assets. Dustvas s pre-merger beta is 1.36 and is not likely to be altered as a result of the proposed merger. Magiclean's pre-merger beta is 1.02, and both it and Dustvac, face a 40% tax rate. Magiclean's capital structure is 50% debt and 50% equity, and it has $24 million in total assets. The net cash flows from Dustvac available to Magiclean's stockholders are estimated at $4.0 million for each of the next three years and a terminal value of $23.0 million in Year 4. Additionally, new debt issued by the combined firm would yield 10% after-tax, and the cost of equity is estimated at 12.59%. Currently, the risk-free rate is 6.0% and the expected market return is 14.88%. 1) What is the merged firm's WACC? I 2) What is the merged firm's new beta? 3) What is the appropriate discount rate Magiclean, should use to discount the equity cash flows from Dustvac? 4) What is the present value (to the nearest thousand) of the Dustvac, cash inflows to Magiclean? 5) If the acquisition price of Dustvac, is 185% of Dustvas's current book value of assets, should Magiclean proceed with the acquisition?

Answer rating: 100% (QA)

Sure I can help you with these financial calculations Lets work through each question step by step Question 1 What is the merged firms WACC The Weight... View the full answer