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1 3 . You have been given the job of evaluating the following merger candidate. You have collected the following cash flow for the acquisition
You have been given the job of evaluating the following merger candidate. You have collected the following cash flow for the acquisition candidate for the proposed merger in millions:
Projected cash flows for the target company:
Year Thereafter per year
Cash flows now
Additional cash flows with merger
Total cash flows with merger
Risk free rate of return
Beta for the acquiring company
Beta for this target company
Market risk premium
Pretax cost of debt
Marginal tax rate
Number of shares outstanding for the target company millions
Current market price per share for the target company $
Percentage of the acquisition financed with debt
Percentage of the acquisition financed with common equity
What is the aftertax cost of debt?
What is the aftertax cost of common equity?
What is the weighted average cost of capital for this acquisition candidate?
What is the maximum price per share you are willing to pay for this candidate?
Based on the numbers above, would you pursue this candidate?
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