0. This task assesses the following learning outcomes:

   • Critically evaluate a merger.

   • Describe and analyze the trade-off between leasing and buying fixed assets.

   • Explain the purpose and procedure related to an Initial Public Offering.

   • Understand the Cost of Capital for a Corporation and how to compute the weighted average.

     ASSIGNMENT QUESTIONS:

     IMPORTANT: SHOW YOUR DETAILED COMPUTATIONS FOR EACH EXERCISE.

     Exercises (25 marks each) Exercise 1.) IPO

     Attrex needs to raise 96m$ for international expansion. The decision was made to fund the project via new share issue. The share price is 28$. The underwriter agreed to take 7% commission on the issue and other indirect costs not included in the spread amount to $2,280,000.-

     1. Compute the net $ amount Attrex will receive per share sold.

     2. How many additional shares will Attrex have to issue to cover for indirect expenses?

     3. Compute the total amount of shares that need to be sold at $28.-

Task brief & rubric

Exercise 2.) Leasing

Attrex is considering leasing a new molding press. The lease lasts for 5 years. The lease calls for 6 payments of $242,000 per year with the first payment occurring immediately. The press would cost $1,250,000 to buy and would be depreciated using the straight-line method to zero salvage over 5 years. The firm can borrow at a rate of 6,5%. The corporate tax rate is 25%. What is the NPV of the lease?

Exercise 3.) M&A

Consider the following information for two all-equity firms, Firm Attrex and Firm Maliwan:

Attrex estimates that the value of the synergistic benefit from acquiring Maliwan is yearly positive Cash Flow of $1,085,000 in perpetuity. Maliwan has indicated that it would accept a cash purchase offer of $525.715 per share. Attrex is thinking about offering 38% of their shares in exchange. How should Attrex proceed?

Exercise 4.) WACC

The total book value of Attrexs equity is $192 million, and book value per share is $20. The stock has a market-to-book ratio of 1.5, and the cost of equity is 12%. The firms bonds have a face value of $25 million and sell at a price of 108% of face value. The yield to maturity on the bonds is 4.9%, and the firms tax rate is 25%. Find the companys WACC.