You are an acquisitions analyst for Intel and have been asked to pass judgment on whether...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are an acquisitions analyst for Intel and have been asked to pass judgment on whether a potential target firm is under valued. The firm has 100 million shares outstanding, trading at $ 50 per share, short term debt outstanding of $ 1.5 billion and long term debt of $1 billion. The firm's cost of equity is 12.5% and the after-tax cost of debt of 5%. In the current year, the firm had after- tax operating income of $ 500 million and earned a return on capital of 12%. In addition, the firm earned interest income of $ 45 million (before taxes) on a cash balance of $ 625 million, invested primarily in riskless government securities. Estimate the value of the firm assuming that it is in stable growth, growing 5% a year in perpetuity. Solution: Cost of capital = Reinvestment rate = Value of Operating Assets = Value of Cash = Value of firm = 10.00% 41.67% 6125 625 6750 ! I am assuming that the cash is earning a fair return You are an acquisitions analyst for Intel and have been asked to pass judgment on whether a potential target firm is under valued. The firm has 100 million shares outstanding, trading at $ 50 per share, short term debt outstanding of $ 1.5 billion and long term debt of $1 billion. The firm's cost of equity is 12.5% and the after-tax cost of debt of 5%. In the current year, the firm had after- tax operating income of $ 500 million and earned a return on capital of 12%. In addition, the firm earned interest income of $ 45 million (before taxes) on a cash balance of $ 625 million, invested primarily in riskless government securities. Estimate the value of the firm assuming that it is in stable growth, growing 5% a year in perpetuity. Solution: Cost of capital = Reinvestment rate = Value of Operating Assets = Value of Cash = Value of firm = 10.00% 41.67% 6125 625 6750 ! I am assuming that the cash is earning a fair return
Expert Answer:
Answer rating: 100% (QA)
Sure I can help you with that Here is the solution Step 1 Calculate the weighted average cost of cap... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
BACKGROUND You are an information analyst working for NEE. The company president has asked you to prepare a Quantitative analysis of financial, sales, and operations data to help determine which...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Vern Westby inherited a ticket from Anna Sjoblom, a survivor of the sinking of the Titanic, which had been pinned to the inside of her coat. He also inherited an album of postcards, some of which...
-
The following are several transactions and events that might be disclosed on a companys statement of cash flows: 1. Issuance of common stock 2. Purchase of building 3. Net income 4. Increase in...
-
Kyoto Joe, Inc., sells earnings forecasts for Japanese securities. Its credit terms are 2/10, net 30. Based on experience, 65 percent of all customers will take the discount. a. What is the average...
-
Redesign the fractionator of Example 6.8 for a reflux ratio that is twice the minimum. Determine the diameter of the tower, the height of packing in the stripping and rectifying sections, and the...
-
The following audit procedures were performed in the audit of inventory to satisfy specific balance-related audit objectives as discussed in Chapter 6. The audit procedures assume that the auditor...
-
This table lists the gross property tax distribution applicable to a local homeowner. Property Tax Distribution. Taxing Authority 2017 2018 Airport $45.88 $46.71 Citilink - PTC $63.69 $66.18 City...
-
Goldie and Kurt want advice from your financial advising firm. They have provided the following information. They graduated from university four years ago and they have good jobs, but neither of them...
-
Which of the following statements is true? (A) HF is less polar than HBr (B) absolutely pure water does not contain any ions (C) chemical bond formation take place when forces of attraction overcome...
-
Find the derivative. F'(x) if F(x) = (ex +5) 8 F'(x) =
-
Solve this exercise with steps and details by Real Analysis: nx 4x+1 fn: [0, 1] IR, nal with fulves (1) Show that the sequence has a pointwise limit and Compute it. (2) Does it have a uniform limit?...
-
Apply the three-step method to compute f'(x) where f(x) = 8x +4. Find and simplify the difference quotient. f(x+h)-f(x) h = I
-
The stated interest rate is 6% for $30,000. If there is a fee of $200 upfront, what is the APR or Effective interest rate?
-
An antiderivative of f(x) = 3x4/3 + 4x5/4 is F(x) x7/3+ +
-
Parametrize the curve obtained by intersecting the cylinder x + z 4 and the plane y = x. Make a single sketch showing both surfaces and their curve of intersection. Finally, find an equation of a...
-
A genetically engineered strain of Escherichia coli (E. coli) is used to synthesize human insulin for people suffering from type I diabetes mellitus. In the following simplified reaction scheme,...
-
Omar Co. is a wholly owned foreign subsidiary of Trot Corporation, a Canadian company. Omar Co.'s transactions and financial statements are denominated in the local (functional) currency, the omnit...
-
Pure Joy (PJ) is a not-for-profit organization and has a relationship with Quick Kids (QK), another not-for profit organization. This relationship gives PJ the continuing power to determine the...
-
Aries Inc. holds a 90% interest in Sharatan Ltd., a corporation based in France. The functional currency of Sharatan (self-sustaining subsidiary) is the euro. Aries's interest in Sharatan was...
-
N = 230, n = 15, k = 200 Compute the mean and standard deviation of the hypergeometric random variable X.
-
One study showed that in a certain year, airline fatalities occur at the rate of 0.011 deaths per 100 million miles. Find the probability that, during the next 100 million miles of flight, there will...
-
N = 60, n = 8, k = 25 Compute the mean and standard deviation of the hypergeometric random variable X.
Study smarter with the SolutionInn App