BTR Warehousing, which is considering the acquisition of Globo-Chem Co., estimates that acquiring Globo-Chem will result...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/6649517061506_0076649516f8ef9e.jpg)
Transcribed Image Text:
BTR Warehousing, which is considering the acquisition of Globo-Chem Co., estimates that acquiring Globo-Chem will result in an 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 (in millions of dollars) Year 1 Year 2 Year 3 EBIT $11.0 $13.2 $16.5 Interest expense 3.0 3.3 3.6 Debt 34.1 40.3 43.4 Total net operating capital 105.1 107.1 109.1 Globo-Chem Co. is a publicly traded company, and its market-determined pre-merger beta is 1.60. You also have the following information about the company and the projected statements: Globo-Chem currently has a $16.00 million market value of equity and $10.40 million in debt. The risk-free rate is 5%, there is a 7.10% market risk premium, and the Capital Asset Pricing Model produces a pre-merger required rate of return on equity SL of 16.36%. Globo-Chem's cost of debt is 7.00% at a tax rate of 30%. .The projections assume that the company will have a post-horizon growth rate of 4.00%. Current total net operating capital is $102.0, and the sum of existing debt and debt required to maintain a constant capital structure at the time of acquisition is $31 million. The firm does not have any nonoperating assets such as marketable securities. Given this information, use the adjusted present value (APV) approach to calculate the following values involved in merger analysis. (Note: Only round intermediate calculations when entering them as a final answer.) Unlevered cost of equity Horizon value of unlevered cash flows Horizon value of tax shield Unlevered value of operations Value of tax shield Value of operations Thus, the total value of Globo-Chem's equity is Value BTR Warehousing, which is considering the acquisition of Globo-Chem Co., estimates that acquiring Globo-Chem will result in an 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 (in millions of dollars) Year 1 Year 2 Year 3 EBIT $11.0 $13.2 $16.5 Interest expense 3.0 3.3 3.6 Debt 34.1 40.3 43.4 Total net operating capital 105.1 107.1 109.1 Globo-Chem Co. is a publicly traded company, and its market-determined pre-merger beta is 1.60. You also have the following information about the company and the projected statements: Globo-Chem currently has a $16.00 million market value of equity and $10.40 million in debt. The risk-free rate is 5%, there is a 7.10% market risk premium, and the Capital Asset Pricing Model produces a pre-merger required rate of return on equity SL of 16.36%. Globo-Chem's cost of debt is 7.00% at a tax rate of 30%. .The projections assume that the company will have a post-horizon growth rate of 4.00%. Current total net operating capital is $102.0, and the sum of existing debt and debt required to maintain a constant capital structure at the time of acquisition is $31 million. The firm does not have any nonoperating assets such as marketable securities. Given this information, use the adjusted present value (APV) approach to calculate the following values involved in merger analysis. (Note: Only round intermediate calculations when entering them as a final answer.) Unlevered cost of equity Horizon value of unlevered cash flows Horizon value of tax shield Unlevered value of operations Value of tax shield Value of operations Thus, the total value of Globo-Chem's equity is Value
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Most businesses will incur debt at some point during their existence. Question 26 options: True False
-
In Figure, let ??= 30 o , m?= 0.4 kg, ? = 15 m, and R?= 2.0 ?. The rod starts from rest at the top of the inclined plane at t?= 0. The rails have negligible resistance. There is a constant,...
-
The Plant Assets account of Betterbuilt, Inc., shows the following: Better built, Inc., sold plant assets at a \($10,000\) gain. Flow much should Better built, Inc., report for the sale? a. Cash...
-
Events and Transactions} Several events are listed below. a. Paid \(\$ 30,000\) for land. b. Purchased office supplies for cash. c. Performed consulting services for a client with the amount to be...
-
During 2008, each corporate user of e-mail sent or received over 150 messages per day. By 2011, that number is estimated to be well over 225. U.S. Cellulars Chief Operating Officer Jay Ellison...
-
8. [-/4 Points] DETAIL LARCALCET7 3.7.020. A trough is 12 feet long and 3 feet across the top (see figure). Its ends are isosceles triangles with altitudes of 3 feet. 2 113 min 12 1 3 It (a) If water...
-
Ellen, a citizen of California, was seriously injured in a car accident while driving in California. She was injured due to the negligence of Sara, an Arizona citizen, who ran a red light at an...
-
a. What types of reports are encompassed by the term special reports as described in SAS 62? b. State a common characteristic of the types of data covered by special reports.
-
a. What evidence is required in an audit of litigation, claims, and assessments? b. What is a letter of audit inquiry? c. What effects may failure of a lawyer to respond to a letter of audit inquiry...
-
a. What objectives are met in obtaining a client representation letter? b. What is the impact of a client's refusal to provide a rep letter.
-
What was Tootsie Roll's largest current asset, largest current liability, and largest item under "Other assets" at December 31, 2007 ?
-
a. Identify the four types of attest engagements that have been recognized in professional standards. b. Indicate the levels of assurance and attestation risk associated with each type.
-
An I/O psychologist would like to predict the salary of employees based on years of employment in the company. He took a small sample of employees, asked them their years of service and their annual...
-
Suppose that a flow network G = (V, E) violates the assumption that the network contains a path s t for all vertices V. Let u be a vertex for which there is no path s u t. Show that there must...
-
Use the data in P 2 for this problem. Required 1. Prepare entries in journal form (refer to the review problem) to record the transactions, assuming use of the periodic inventory system. 2. User...
-
At the end of the fiscal year, June 30, 20x6, selected accounts from the adjusted trial balance for Hans Video Store, Inc., appeared as shown below. Required 1. Prepare a multistep income statement...
-
Selected accounts from the adjusted trial balance for Pierres Gourmet Shop, Inc., as of March 31, 20x7, the end of the fiscal year, are shown below. The merchandise inventory for Pierres Gourmet Shop...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App