Question: Please work it very fast, my time is limitted ! ! RDS wants to expand its party stores into the Southeast. To establish an immediate
Please work it very fast, my time is limitted
RDS wants to expand its party stores into the Southeast. To establish an immediate presence in the area, the company is considering the purchase of the privately held Floyd Supply. RDS currently has debt outstanding with a market value of $ million and a YM of percent. The company's market capitalization is $ million and the required return on equity is percent. Floyd currently has debt outstanding with a market value of $ million. The EBIT for Floyd next year is projected to be $million. EBIT is expected to grow at percent per year for the next five years before slowing to percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be percent, percent, and percent, respectively. Floyd Supply has million shares outstanding and the tax rate for both companies is percent.
a What is the WACC for the RDS
b What is the terminal value of Floyd in year
c What is the value of the company today?
d Based on these estimates, what is the maximum share price that RDS should be willing to pay for Floyd's?
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