Smart Products plans to acquire Snazzy Snaps, which will create $8 million in incremental cash flows for
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Smart Products plans to acquire Snazzy Snaps, which will create $8 million in incremental cash flows for Smart each year for the first six years. Smart Products plans to divest Snazzy Snaps at the end of the sixth year for $112,500,000. Smart's beta (b) is 1.2, and is expected to remain so after the acquisition. The risk free rate is 5 percent and the expected return on the market is 16 percent. Smart Products has a 100 percent equity capital structure which will be maintained which will be maintained post-acquisition. What is Smart Products' cost of equity?
Related Book For
Introduction to Corporate Finance What Companies Do
ISBN: 978-1111222284
3rd edition
Authors: John Graham, Scott Smart
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