and Study Tools 6. Merger analysis - Free cash flow to equity (FCFE) approach Washington Company is considering in acquisition of Rapid Routes Logistics, Washington Company estimates that acquiring Rapid Routes will rest in incremental value for the firm. The analysts involved in the deat have collected the following information from the projected financial statements of the target company ptions Success Tips success Tips FOR YOU Data Collected (Millions of dollars) (Milions of dollars) (Millions of dollars) Year 1 Year 2 Year CIT 20.0 MO 30.0 Interest expense 40 48 Debt 30.8 36.4 392 Total net operating capital 117.4 122.0 on Social Rapid Routes is a publicly traded company and its market determined pre-merger but is 1.60. You also have the following information about the company and the projected statements dback Rapid Routes currently has a $22.00 million market value of equity and $14. 30 milion in debt The risk free rate is 4% with a 6,10% market risk premium, and the Capital Asset Priang Model produces a pre-merger required rate of return on equity of 13,76%. Rapid Routes's cost of debt is 6.00% at a tax rate of 40%. The projections assume that the company will have a post horcon growth rate of 5.00% . Current total net operating capitals $114.0 million, and the sum of existing cut and debt required to maintain a constant capital Porate control 6 X The projections assume that the company will have a post horizon growth rate of 5.00% . Current total net operating capital is $114.0 million, and the sum of existing debt and debt required to maintain a constant capital structure at the time of acquisition is $28 milion The firm has no nonoperating assets, such as marketable securities ols with the given information, use the free cash flow to equity (FCFE) approach to calculate the following valves involved in the morper analysis. (Note Round your answer to two decimal places, but do not round watermediate cakulations) Value FCFE horizon value Value of FCFE The estimated value of Rapid Routes's operations after the merger is than the market value of Rapid Routes's equity. This means that the wealth of Rapid Routes's shareholders will if it merges with Washington rather than remaining as a stand-alone corporation True or False: The horizon value in the FCFE approach is different from the horizon value in the adjusted present value (APV) approach. The horizon value in the FCFE approach is only for equity, whereas the horizon value in the APV approach is for the total value of operation. True False Grado It Now Save & Continue Continue without saving
