#7 starts out with "Flatbush Shipyards" need a, b, c, & d answered please.
avenport University @ Login G Google @englishbook Login l Sunbelt Ren.. The Home Depo Othe . A sporting goods manufacturer has decided to expand into a related business. Management estimates that to build and stalf a facility of the desired and to attain capacity operations would cost $450 million in present value terms. Alternatively, the company could acquire an exsting firm or divisi with the desired capacity. One such opportunity is a division of another company. The book value of the division's assets is $250 million and its earnings before interest and tax are presently $50 million. Publicly traded comparable companles are selling in a narrow range around 12 times current earmin These companies have book value debt-to-asset ratios averaging 40 percent with an average interest rate of 10 percent. a. Using a tax rate of 34 percent, estimate the minimum price the owner of the division should consider for its sale b. What is the maximum price the acquirer should be willing to pay? c Does it appear that an acquisition is feasible? Why or why not? d. Would a 25 percent increase in stock prices to an industry average price-to-eamings ratio of 15 change your answer to (c)? Why or why not? e. Referring to the 5450 million price tag as the replacement vakue of the division what would you predict would happen to acquisition actbity wh market values of companies and divisions rise above their replacement values? 7. Flatbush Shipyards is a no-growth company expected to pay a $12-per-share annual dividend into the distant future. Its cost of equity capital is 15 to $6 per share and use the savings to acquire percent. The new president abhors the no-growth image and proposes to halve next years vidondconident that afer the acquisition another firm. The president maintains that this strategy will boost gs, and assets Moreover, he is confident that a dividends in year 2 and beyond can be increased to S12.75 per share a. Do you agree that the acquisition will likely increase sales, earnings, and assets? b. Estimate the per share value of Flatbush's stock in c Estimate the per share value immediately after the proposal has been announced d. As an owner of Flatbush, would s a. What does it mean when a sompany's free cash flow is negative in one or more years? b. Do negative values of free cash flow in any way alter or invalidate or to the presid al. Id you support the president's proposal? Why or why not? its free the notion that a company's fair market value equals the present value of cash flows discounted at the company's weighted-average cost of capital? c Suppose a company's free cash flows were expected to be negative in all future periods Can you conceive of any reasons for buying the company stock? 9 Procureps, Inc. (P) is considering two possible acquisitions, neither of which promises any enhancements or synergistic benefts ratio of performing firm in a declining industry with a price-to-earnings ratio of 8 times. V2 is a high-growth technology company with a price-to-earnings r 35 times Procureps is interested in making any acquisition that increases its current earnings per share All of Procureps 's acquisit of-share mergers a Calculate the maximum percentage premium Procureps can afford to pay for V1 and V2 by replacing the question marks in the following table b What do your answers to part (a) suggest about the wisdom of using avoid dilution in earnings per share" as a criterion in merger analysis? P vi V2 P V2 Company 35 Earnings after tax (Ss miltions) Price-to-earnings ratio x Market value of equitv (S milions) 30
