FIN $524$

Value Analysis Exercise

A financial analyst determines that Laske Company has $$80$ million of interest bearing debt outstanding and $4,200,000$ common shares outstanding at the end of $2015.$ She also estimates that Laske's after$-$tax cost of debt is $5\mathrm{.}6\%$ and that its cost of equity using the capital asset pricing model is $9\mathrm{.}4\%.$ The company pays a $$2\mathrm{.}20$ dividend and has a current stock price $$42$ per share. The company has a marginal income tax rate of $37\%.$ All of Laske$$s debt is a result of the Company acquiring a $60\%$ interest in Moog Company for $$80$ million in a debt transaction. Moog Company's net assets $($stockholders equity$)$ were $$10$ million prior to the acquisition, and all book values equaled fair market values.

Required:

a$.$ Compute Laske's average borrowing rate.

b$.$ Compute the company's weighted average cost of capital.

c$.$ Assuming that Laske's dividend will last into perpetuity what cost of equity capital is inferred by the current stock price?

d$.$ Assuming that the financial analyst has properly calculated the cost of equity capital and that Laske will pay a dividend of $$2\mathrm{.}20$ next year what growth rate is implied by the current stock price?

e$.$ Calculate the Goodwill as a result of the acquisition. Calculate Minority Interest on the consolidated balance sheet.