4. Eisner Enterprises is evaluating the acquisition of the Crossroads Company, a small all-equity electronic components supply company. Crossroads' earnings projects are shown below. Revenues are assumed to grow 20% per year for the next three years, at which time they will remain constant for the foreseeable future. Operating costs are 40% of revenues, while overhead expenses are $100,000 plus 10% of revenues. The tax rate is 20%. For a company in Crossroads' risk class, investors require a 25% return. Revenues Operating costs Overhead Depreciation Earnings before tax Tax Earnings after tax Crossroads Company (dollars in thousands) Year 1 Year 2 $2,000.00 $2,400.00 $800.00 $960.00 $300.00 $340.00 $250.00 $250.00 $650.00 $850.00 $130.00 $170.00 $520.00 $680.00 Year 3 $2,880.00 $1,152.00 $388.00 $250.00 $1,090.00 $218.00 $872.00 Year 4+ $3,456.00 $1,382.40 $445.60 $250.00 $1,378.00 $275.60 $1,102.40 a. Estimate the value of Crossroads under its current management. b. The president of Eisner Enterprises believes that once they take over Crossroads he could reduce operating costs to 30% of revenues from the currently assumed 40%, and reduce overhead expenses to $100,000 plus 5% of revenues from the currently assumed $100,000 plus 10% of revenues. What is the value of Crossroads to Eisner if these changes are implemented? C. An investment banker suggests that Eisner makes a cash offer of $5,600,000 to Crossroads. The deal will be financed entirely with debt by borrowing $5,600,000 at 12% and paying down the debt in four equal installments. Thus, at the end of year four, the firm will be back to all equity. In the meantime, Eisner could take advantage of the tax benefits of debt financing. If Eisner follows the investment banker's suggestion, what is the NPV of the acquisition? 4. Eisner Enterprises is evaluating the acquisition of the Crossroads Company, a small all-equity electronic components supply company. Crossroads' earnings projects are shown below. Revenues are assumed to grow 20% per year for the next three years, at which time they will remain constant for the foreseeable future. Operating costs are 40% of revenues, while overhead expenses are $100,000 plus 10% of revenues. The tax rate is 20%. For a company in Crossroads' risk class, investors require a 25% return. Revenues Operating costs Overhead Depreciation Earnings before tax Tax Earnings after tax Crossroads Company (dollars in thousands) Year 1 Year 2 $2,000.00 $2,400.00 $800.00 $960.00 $300.00 $340.00 $250.00 $250.00 $650.00 $850.00 $130.00 $170.00 $520.00 $680.00 Year 3 $2,880.00 $1,152.00 $388.00 $250.00 $1,090.00 $218.00 $872.00 Year 4+ $3,456.00 $1,382.40 $445.60 $250.00 $1,378.00 $275.60 $1,102.40 a. Estimate the value of Crossroads under its current management. b. The president of Eisner Enterprises believes that once they take over Crossroads he could reduce operating costs to 30% of revenues from the currently assumed 40%, and reduce overhead expenses to $100,000 plus 5% of revenues from the currently assumed $100,000 plus 10% of revenues. What is the value of Crossroads to Eisner if these changes are implemented? C. An investment banker suggests that Eisner makes a cash offer of $5,600,000 to Crossroads. The deal will be financed entirely with debt by borrowing $5,600,000 at 12% and paying down the debt in four equal installments. Thus, at the end of year four, the firm will be back to all equity. In the meantime, Eisner could take advantage of the tax benefits of debt financing. If Eisner follows the investment banker's suggestion, what is the NPV of the acquisition