5. Herger analysis. Adjusted present value (APV) approach RTE Telecom Inc., which is considering the acquisition of Galaxy Sun Corp, estimates that acquiring Galaxy Sun will result in an incremental value for the firm. The analysts involved in the deal have collected the following information from the projected financial statements of the target company: Data Collected (in millions of dollars) Year 1 Year 2 Year 3 EBIT $7.0 $8.4 $10.5 Interest expense S.O 5.5 6.0 Debe 341 40.3 43.4 Total net operating capital 123.6 126.0 128.4 Galaxy Sun Corp. is a publidy traded company, and its market determined pre-merger beta is 1.40. You also have the following information about the company and the projected statements: Galaxy Sun currently has a $20.00 million market value of equity and 513.00 million in debt. The risk free rate is 3.5%, there is a 5.60% market risk premium, and the Capital Asset Pricing Model produces a pre-merger required rate of return on equity of 11.34% Galaxy Sun's cost of debt is 5.50% atatex rate of 40% The projections assume that the company est Galaxy Sun currently has a $20.00 million market value of equity and $13.00 million in debt. The risk free rate is 3.5%, there is a 5.60% market risk premium, and the Capital Asset Pricing Model produces a pre-merger required rate of return on equity ra of 11.34%. Galaxy Sun's cost of debt is 5.50% at a tax rate of 40%. . The projections assume that the company will have a post-honzon growth rate of 4.50%. Current total net operating capital is $120.0, and the sum of existing debt and debt required to maintain a constant capital structure at the time of acquisition is $31 million . The firm does not have any nonoperating assets such as marketable securities. Given this information, use the adjusted present value (APV) approach to calculate the following values involved in merger analysis: (Note: Round your answers to two deomal places, but do not round intermediate calculations.) Value Unlevered cost of equity Horizon value of unlevered cash flows Horizon value of tax shield Unlevered value of operations Value of tax shield Value of operations 62'F Mostly ch. C Ch 26: Assignment - Mergers and Corporate Control Valve Unlevered cost of equity Horizon value of anlevered cash flows Hordon value of a shield Unlevered value of operations Value of the Value of operations Thus, the total value of Galaxy Sun's equity is LTE Telecom Inc. plures to use more debt in the first few years of the action of salary Sun Core, Anuming that wing more date will not lead to an increase in bankruptcy costs for Te Telecom Ire, the interest to shields and the value of the ta shed in the natus, mat Leading to value of operations of the accured fium, The AP aproach is considered for valuing to targets, because the method wolves inding the values of the untevered form and the nterest to the parately and then servering those values. Why is it difficult to value certain types acquisitions using the corporate valuation model The cities for womes the delit of the target fum. Thus, old one with free comportes wally becomes a part of the Thit caring form water retires the wait tom's sid sebe. Thus, the source that consists of only new dette in its capital Grade it Now Save & Continue Contrue without saving 5. Herger analysis. Adjusted present value (APV) approach RTE Telecom Inc., which is considering the acquisition of Galaxy Sun Corp, estimates that acquiring Galaxy Sun will result in an incremental value for the firm. The analysts involved in the deal have collected the following information from the projected financial statements of the target company: Data Collected (in millions of dollars) Year 1 Year 2 Year 3 EBIT $7.0 $8.4 $10.5 Interest expense S.O 5.5 6.0 Debe 341 40.3 43.4 Total net operating capital 123.6 126.0 128.4 Galaxy Sun Corp. is a publidy traded company, and its market determined pre-merger beta is 1.40. You also have the following information about the company and the projected statements: Galaxy Sun currently has a $20.00 million market value of equity and 513.00 million in debt. The risk free rate is 3.5%, there is a 5.60% market risk premium, and the Capital Asset Pricing Model produces a pre-merger required rate of return on equity of 11.34% Galaxy Sun's cost of debt is 5.50% atatex rate of 40% The projections assume that the company est Galaxy Sun currently has a $20.00 million market value of equity and $13.00 million in debt. The risk free rate is 3.5%, there is a 5.60% market risk premium, and the Capital Asset Pricing Model produces a pre-merger required rate of return on equity ra of 11.34%. Galaxy Sun's cost of debt is 5.50% at a tax rate of 40%. . The projections assume that the company will have a post-honzon growth rate of 4.50%. Current total net operating capital is $120.0, and the sum of existing debt and debt required to maintain a constant capital structure at the time of acquisition is $31 million . The firm does not have any nonoperating assets such as marketable securities. Given this information, use the adjusted present value (APV) approach to calculate the following values involved in merger analysis: (Note: Round your answers to two deomal places, but do not round intermediate calculations.) Value Unlevered cost of equity Horizon value of unlevered cash flows Horizon value of tax shield Unlevered value of operations Value of tax shield Value of operations 62'F Mostly ch. C Ch 26: Assignment - Mergers and Corporate Control Valve Unlevered cost of equity Horizon value of anlevered cash flows Hordon value of a shield Unlevered value of operations Value of the Value of operations Thus, the total value of Galaxy Sun's equity is LTE Telecom Inc. plures to use more debt in the first few years of the action of salary Sun Core, Anuming that wing more date will not lead to an increase in bankruptcy costs for Te Telecom Ire, the interest to shields and the value of the ta shed in the natus, mat Leading to value of operations of the accured fium, The AP aproach is considered for valuing to targets, because the method wolves inding the values of the untevered form and the nterest to the parately and then servering those values. Why is it difficult to value certain types acquisitions using the corporate valuation model The cities for womes the delit of the target fum. Thus, old one with free comportes wally becomes a part of the Thit caring form water retires the wait tom's sid sebe. Thus, the source that consists of only new dette in its capital Grade it Now Save & Continue Contrue without saving