Question: Looking for help filling out excel sheet Vandell's beta is 1.45. Hastings estimates that if it acquires Vandell, interest payments will be $1,500,000 per year

Vandell's beta is 1.45. Hastings estimates that if it acquires Vandell, interest payments will be $1,500,000 per year for 3 years. The free cash flows are supposed to be $2.3 million, $3.1 million, $3.4 million, and then $3.57 million in Years 1 through 4 , respectively. Suppose Hastings will increase Vandell's level of debt at the end of Year 3 to $30.7 million so that the target capital structure will be 45% debt. Assume that with this higher level of debt the interest rate would be 8.5%, and assume that interest payments in Year 4 are based on the new debt level from the end of Year 3 and new interest rate. Free cash flows and tax shields are profected to grow at 4% after Year 4. The data has been collected in the Microsoft Excel Online file below, Open the spreadsheet and perform the required analysis to answer the questions below. What is the value of the unlevered firm? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2,00 not round intermediate calculations. Round your answer to two decimal places. 5 What is the value of the tax shield? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2 .00 not round intermediate calculations. Round your answer to two decimal places. s What is the maximum total price that Hastings would bid for Vandell now? Assume Vandell now has $11.72 million in debt. Enter your answer in dollars. For example, an answer of $1.2 milion should be entered as 1,200,000, not 1.2 . Do not round intermediate calculations. Round your answer to two decimal places. Merger Valuation with Change in Capital Structure \begin{tabular}{l|r} \hline Debt interest rate & 7.00% \\ \hline Risk-free rate & 4.00% \\ \hline Market risk premium & 7.00% \\ \hline Tax rate & 30.00% \\ \hline Beta & 1,45 \\ \hline Interest payments, Years 1-3 & $1,500,000 \\ \hline Gromh rate & 4.00% \\ \hline Free cash flow, Year 1 & $2,300,000 \\ \hline Free cash flow, Year 2 & $3,100,000 \\ \hline Free cash flow, Year 3 & $3,400,000 \\ \hline Free cash flow, Year 4 & $3,570,000 \\ \hline \end{tabular} \begin{tabular}{l|r|} \hline Level of debt, Year 3 & $30,700,000 \\ \hline New interest rate at higher debt level & 8.50% \end{tabular} \begin{tabular}{l|l} New target capital structure: & \\ \hline Debt & 45.00% \\ \hline Equity & 55.00% \\ \hline \end{tabular} Calculate target fim's levered cost of equly fi Formulas Calculate target firm's unlevered cost of equity rill \#N/A Calculate target firm's unlovered value: Unlevered horizon value of FCF Untevered value of operations Calculate valuo of interest tax shiolds: Tax shield, Year 1 Tax shield, Year 2 Tax shield, Year 3 Tax shield, Year 4 Tax shield, Horizon value Value of tax shields Calculote target firm's por share value to acquining fim: Value of operations Target firm's equity value to acquiring firm Per share value to acquiring firm
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
