USING DCF TO COMPUTE ENTERPRISE VALUE AND BOOK VALUE

Using the information from APPLYING THE DISCOUNTED CASH FLOW METHOD OF BUSINESS VALUATION (Mergers, Acquisitions and Corporate Restructurings)

Year 1 - FCFs $27 500 000

Year 2 - FCFs $30 100 000

Year 3 - FCFs $32 800 000

Year 4 - FCFs $35 400 000

Year 5 - FCFs $37 900 000

Year 6 - FCFs $40 200 000

WACC (r) = 15%

Growth rate (g) = 7%

Market Value of Debt & Preferred Equity = $100 000 000

Shares Outstanding = 40 000 000

Questions part 1 :

(a) Calculate the capitalization rate

(b) Calculate the terminal value

(c) Calculate the Total Enterprise Value (TEV)

(d) Calculate the share price

Question part 2:

POST ACQUISITION VALUE

CPI, Inc. is acquiring JW for R470 000 in cash. CPI has 27 000 shares outstanding at a market value of R320 a share. JW has 32 000 shares outstanding at a market price of R140 a share. Neither firm has any debt. The synergy value of the acquisition is R18 000.

What is the value of CPI after the acquisition?

Question part 3:

NUMBER OF NEW SHARES TO BE ISSUED FOR ACQUISITION

GM Corporation is being acquired by BKF Ltd. for R1 290 000 worth of BKF Ltd. shares. BKF has 75 000 shares outstanding at a price of R54 a share. GM has 15 000 shares outstanding with a market value of R27 a share. The synergy value of the acquisition is R37 000.

How many new shares will be issued to finish this acquisition?

question part 4:

AFTER MERGER EARNINGS

Firm XY is planning on merging with Firm YZ. Firm XY will pay Firm YZ's shareholders the current value of their shares in shares of Firm XY. Firm XY currently has 39 000 shares outstanding at a market price of R40 a share. Firm YZ has 22 000 shares outstanding at a price of R17 a share. The after-merger earnings will be R78 000.

What will the earnings per share be after the merger?