Continued: Raymond Supply, a national hardware chain, is considering purchasing a smaller chain, Strauss & Glazer...

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Continued: Raymond Supply, a national hardware chain, is considering purchasing a smaller chain, Strauss & Glazer Parts (SGP). Raymond's analysts project that the merger will res the following incremental free cash flows, tax shields, and horizon values (in millions): Year FCF 1 2 $5 ST 59 $10 Unlevered Horizon value Tax shield $95 $1 $1 52 $3 Horizon value of tax shield $30 Assume that all cash flows occur at the end of the year. SGP is currently financed with 30% debt at a rate of 8%. The acquisition would be made immediately, and if it is undertaken, SGP would retain its current $20 million debt and issue enough new debt to continue at the 30% target level. The interest rate would remain the same. SGP's pre- merger beta is 1.5, and its post-merger tax rate would be 25%. The risk-free rate is 5% and the market risk premium (=Env-R) is 8%. What is the unlevered value of operations of SGP? A $50.33 $51.67 $52.45 $65.25 E) $77.28 Question 86 Continued: What is the value of the tax shield of SGP? $19.49 $20.34 $22.31 $28.47 $32.14 Continued: Raymond Supply, a national hardware chain, is considering purchasing a smaller chain, Strauss & Glazer Parts (SGP). Raymond's analysts project that the merger will res the following incremental free cash flows, tax shields, and horizon values (in millions): Year FCF 1 2 $5 ST 59 $10 Unlevered Horizon value Tax shield $95 $1 $1 52 $3 Horizon value of tax shield $30 Assume that all cash flows occur at the end of the year. SGP is currently financed with 30% debt at a rate of 8%. The acquisition would be made immediately, and if it is undertaken, SGP would retain its current $20 million debt and issue enough new debt to continue at the 30% target level. The interest rate would remain the same. SGP's pre- merger beta is 1.5, and its post-merger tax rate would be 25%. The risk-free rate is 5% and the market risk premium (=Env-R) is 8%. What is the unlevered value of operations of SGP? A $50.33 $51.67 $52.45 $65.25 E) $77.28 Question 86 Continued: What is the value of the tax shield of SGP? $19.49 $20.34 $22.31 $28.47 $32.14