Question 3. Voracious Ventures, Inc. has a current market value of $290 billion, with $116 billion in debt and 6.7 billion shares outstanding. Voracious is purchasing the real assets of Craven Corp. for $25 billion. Once held by Voracious, the real assets will have a value of $30 billion. The purchase is financed with new debt and internal cash. A brokerage cost of 2% must be paid on new debt. The brokerage cost is financed using internal cash. The tax rate is 35%. For each scenario, calculate the APV of the purchase, and the effect on the value of Voracious and its share price.

a. $10 billion in new debt is issued.

b. The current debt ratio is maintained.

The solutions are:

a. APV = 8.37, Value of Voracious after project = 323.5, Share price increase = 3.5075

b. APV = 9.7023, Value of Voracious after project = 324.8837, Share price increase = 3.1239

How do I get these answers? Thank you!

Edit: I figured out a) just now and you don't need rate of return of equity and debt. But I can't figure out part b)

APV = NPV + Financing Advantage of Debt

APV = (30-25) + ((10*0.35) - (10*0.02)) = 8.37

Value of Voracious = 290 + Project Value + Value of Debt Tax Shield

Value of Voracious = 290 + 30 + (10*.35) = 323.5

Equity Before Project = Value of Voracious Before Project - Debt Before Project = 290 - 116 = 174

Share Price Before Project = 174/6.7 = $25.9701

Equity After Project = Value of Voracious After Project - Debt After Project = 197.5

Share Price After Project = 197.5/6.7 = $29.4776

Share Price Increase = $29.4776 - $25.9701 = $3.5075