Question: Please solve A, B, and C. Please show work. Thank you. 1. Erickson Inc., a large telecommunications company, is evaluating the possible acquisition of Plexus

1. Erickson Inc., a large telecommunications company, is evaluating the possible acquisition of Plexus Corp., a leading manufacturer of memory cards. Erickson's analysts project the following post-merger data for Plexus (in thousands of dollars, with a year end of December 31): 2019A 2020 2021 2022 2023 2024 Net sales $450 $518 $555 $600 $643 Selling and administrative expense 45 53 60 68 73 Interest 40 45 47 52 54 Total net operating capital $800 $850 $930 $1,005 $1,075 $1,150 Tax rate before and after merger: 35% Cost of goods sold as a percent of sales: 65% Plexus's pre-merger beta: 1.93 Risk-free rate: 1% Market risk premium: 6% Terminal growth rate of free cash flows: 7% Current capital structure includes 30% debt with a pre-tax cost of interest of 10%. a. What are the interest tax shields for the next 5 years? (You need to calculate the interest tax shields for 2020 through 2024) b. What is Plexus' terminal value of interest tax shields and unlevered terminal value? 8 = 7% for unlevered terminal value and 3% for interest tax shield. Terminal value of tax shields = Unlevered free cash flow terminal value - c. What is the value of Plexus' equity to Erickson's shareholders if Plexus has $300,000 in debt outstanding now? (You need to calculate the terminal value for Plexus and discount the free cash flows back to the present and add this sum to the present value of the interest tax shields and related terminal value to arrive at the total value of Plexus' assets)
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
