Question
1) What is the value of Chico Clothing Company? Assume that your valuation is performed today at Year 0, and that the revenues shown in
1) What is the value of Chico Clothing Company? Assume that your valuation is performed today at Year 0, and that the revenues shown in Table 1 are end-of-year year forecasts.
2) Suppose Pampa RV offers to pay $12 for each of CCC's outstanding shares. If the market fully impounds this information, what will be the new price per share of Pampa's common stock?
3) What is the most that Pampa should pay for CCC? Why?
4) Estimate the beta of the combined entity (Pampa + CCC) after the merger. Based on your answer, will the merged firm's cost of capital to be higher or lower than Pampa's current cost of capital? Explain your answer. Hint: Firm beta is a value-weighted average of individual betas.
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