I just need help solving question #1

I understand that the expected value of Hybrid is $331,376,222, but i dont understand how it is computed. Can someone please show the calculations for this part? Thanks!

CHAPTER 29 Mergers, Acquisitions, and Divestitures 921 Mini Case THE BIRDIE GOLF-HYBRID GOLF MERGER Birdie Golf, Inc., has been in merger talks with Hybrid Golf Company for the past six months. After several rounds of negotiations, the offer under discussion is a cash offer of $352 million for Hybrid Golf. Both companies have niche markets in the golf club industry, and the com- panies believe a merger will result in significant synergies due to economies of scale in manu- facturing and marketing, as well as significant savings in general and administrative expenses. Bryce Bichon, the financial officer for Birdie, has been instrumental in the merger nego tiations Bryce has prepared the following pro forma financial statements for Hybrid Golf assuming the merger takes place. The financial statements include all synergistic benefits from the merger Sales Production costs Depreciation Other expenses EBIT Interest Taxable income Taxes (40%) Net income 2015 2016 2017 2018 2019 $512,000,000 $576,000,000 $640,000,000 $720,000,000 $800,000,000 359.200.000 403.200.000 448.000.000 505 600.000 564.000.000 48.000.000 51.200.000 52.800.000 53.120.000 53,600,000 51.200.000 57,600,000 64.000.000 72.320.000 77.600,000 $ 53,600.000 $ 64,000,000 $ 75,200,000 $ 88,960,000 $104,800.000 12.160.000 14,080.000 15.360.000 16.000.000 17.280.000 $ 41.440,000 $ 49.920,000 $59.840,000 $72.960,000 $ 87,520.000 16.576,000 19.968,000 23.936.000 29.184.000 35.008.000 $ 24,864.000 $ 29,952.000 $ 35.904.000 $ 43.776.000 5 52.512.000 Bryce is also aware that the Hybrid Golf division will require investments cach year for con- tinuing operations, along with sources of financing. The following table outlines the required investments and sources of financing: 2015 2016 2017 2018 2019 Investments: Net working capital $12.800.000 $16,000,000 $16.000.000 $19.200,000 $19.200.000 Fixed assets 9.600.000 16.000.000 11.520.000 76.800.000 4.480.000 Total $22.400,000 $32,000,000 $27.520.000 $96.000.000 $23.680,000 Sources of financing New debt Profit retention Total $22.400.000 $10.240.000 $10.240.000 0 21.760,000 17.280.000 $22.400,000 $32,000,000 $27,520,000 $ 9.500.000 $ 7,680.000 17.280.000 16.000.000 $26.880.000 $23.680.000 The management of Birdie Golf feels that the capital structure at Hybrid Golf is not optimal. If the merger takes place. Hybrid Golf will immediately increase its leverage with a 571 million debt issue, which would be followed by a 596 million dividend payment to Birdie Golf. This will increase Hybrid's debt-to-equity ratio from 50 to 1.00. Birdie Golf will also be able to use a $16 million tax loss carryforward in 2016 and 2017 from Hybrid Golf's previous operations. The total value of Hybrid Golf is expected to be $576 million in five years, and the company will have $192 million in debt at that time. Stock in Birdie Golf currently sells for $94 per share, and the company has 11.6 million shares of stock outstanding. Hybrid Golf has 5.2 million shares of stock outstanding. Both companies can borrow at an 8 percent interest rate. The risk-free rate is 6 percent, and the expected return on the market is 13 percent. Bryce believes the current cost of capital for Birdie Golf is 11 percent. The beta for Hybrid Golf stock at its current capital structure is 1.30. Bryce has asked you to analyze the financial aspects of the potential merger. Specifically, he has asked you to answer the following questions: 1. Suppose Hybrid shareholders will agree to a merger price of $68.75 per share. Should Birdie proceed with the merger? 2. What is the highest price per share that Birdie should be willing to pay for Hybrid? 3. Suppose Birdie is unwilling to pay cash for the merger but will consider a stock exchange. What exchange ratio would make the merger terms equivalent to the original merger price of $68.75 per share? 4. What is the highest exchange ratio Birdie would be willing to pay and still undertake the merger? CHAPTER 29 Mergers, Acquisitions, and Divestitures 921 Mini Case THE BIRDIE GOLF-HYBRID GOLF MERGER Birdie Golf, Inc., has been in merger talks with Hybrid Golf Company for the past six months. After several rounds of negotiations, the offer under discussion is a cash offer of $352 million for Hybrid Golf. Both companies have niche markets in the golf club industry, and the com- panies believe a merger will result in significant synergies due to economies of scale in manu- facturing and marketing, as well as significant savings in general and administrative expenses. Bryce Bichon, the financial officer for Birdie, has been instrumental in the merger nego tiations Bryce has prepared the following pro forma financial statements for Hybrid Golf assuming the merger takes place. The financial statements include all synergistic benefits from the merger Sales Production costs Depreciation Other expenses EBIT Interest Taxable income Taxes (40%) Net income 2015 2016 2017 2018 2019 $512,000,000 $576,000,000 $640,000,000 $720,000,000 $800,000,000 359.200.000 403.200.000 448.000.000 505 600.000 564.000.000 48.000.000 51.200.000 52.800.000 53.120.000 53,600,000 51.200.000 57,600,000 64.000.000 72.320.000 77.600,000 $ 53,600.000 $ 64,000,000 $ 75,200,000 $ 88,960,000 $104,800.000 12.160.000 14,080.000 15.360.000 16.000.000 17.280.000 $ 41.440,000 $ 49.920,000 $59.840,000 $72.960,000 $ 87,520.000 16.576,000 19.968,000 23.936.000 29.184.000 35.008.000 $ 24,864.000 $ 29,952.000 $ 35.904.000 $ 43.776.000 5 52.512.000 Bryce is also aware that the Hybrid Golf division will require investments cach year for con- tinuing operations, along with sources of financing. The following table outlines the required investments and sources of financing: 2015 2016 2017 2018 2019 Investments: Net working capital $12.800.000 $16,000,000 $16.000.000 $19.200,000 $19.200.000 Fixed assets 9.600.000 16.000.000 11.520.000 76.800.000 4.480.000 Total $22.400,000 $32,000,000 $27.520.000 $96.000.000 $23.680,000 Sources of financing New debt Profit retention Total $22.400.000 $10.240.000 $10.240.000 0 21.760,000 17.280.000 $22.400,000 $32,000,000 $27,520,000 $ 9.500.000 $ 7,680.000 17.280.000 16.000.000 $26.880.000 $23.680.000 The management of Birdie Golf feels that the capital structure at Hybrid Golf is not optimal. If the merger takes place. Hybrid Golf will immediately increase its leverage with a 571 million debt issue, which would be followed by a 596 million dividend payment to Birdie Golf. This will increase Hybrid's debt-to-equity ratio from 50 to 1.00. Birdie Golf will also be able to use a $16 million tax loss carryforward in 2016 and 2017 from Hybrid Golf's previous operations. The total value of Hybrid Golf is expected to be $576 million in five years, and the company will have $192 million in debt at that time. Stock in Birdie Golf currently sells for $94 per share, and the company has 11.6 million shares of stock outstanding. Hybrid Golf has 5.2 million shares of stock outstanding. Both companies can borrow at an 8 percent interest rate. The risk-free rate is 6 percent, and the expected return on the market is 13 percent. Bryce believes the current cost of capital for Birdie Golf is 11 percent. The beta for Hybrid Golf stock at its current capital structure is 1.30. Bryce has asked you to analyze the financial aspects of the potential merger. Specifically, he has asked you to answer the following questions: 1. Suppose Hybrid shareholders will agree to a merger price of $68.75 per share. Should Birdie proceed with the merger? 2. What is the highest price per share that Birdie should be willing to pay for Hybrid? 3. Suppose Birdie is unwilling to pay cash for the merger but will consider a stock exchange. What exchange ratio would make the merger terms equivalent to the original merger price of $68.75 per share? 4. What is the highest exchange ratio Birdie would be willing to pay and still undertake the merger