Birdie Golf, Inc., has been in merger talks with Hybrid Golf Company for the past months. After several rounds of negotiations, the offer under discussion is a cash offer of $352 million for Hybrid Golf. Both companies have niche markets in golf club industry, and the companies believe a merger will result in significant synergies due to economies of scale in manufacturing and marketing, as well as significant savings in general and administrative expenses.

Bryce Bichon, the financial officer of Birdie, has been instrumental in the merger negotiations. Bryce has prepared the following pro forma financial statements for Hybrid Golf assuming the merger takes place. The financial statements include all synergistic benefits from the merger:Bryce is also aware that the Hybrid Golf division will require investments each year for continuing operations, along with sources of financing. The following table outlines the required investments and sources of financing:

The management of Birdie Golf feels that the capital structure at Hybrid Golf is not optimal. If the merger takes place, Hybrid Golf will immediately increase its leverage with a $71 million debt issue, which would be followed by a $96 million dividend payment to Birdie Golf. This will increase Hybrids debt-to-equity ratio from 0.50:1 to 1:1. (In millions) 20X2 20X3 20X4 20X5 20X6 Sales. 512 576 640 720 800 Prod. Cost. 359.2 403 448 505.6 564 Depre. 48 51.2 52.8 53.12 53.6 Other Exp. 51.2 57.6 64 73.32 77.6 EBIT 53.6 64 75.2 88.96 104.8 Interest. 12.16 14.08 15.36 16 17.28 Tax Int. 41.44 49.92 59.84 72.96 87.52 Tax (40%)16.576 19.968 23.963 29.184 30.008 (X6) Net Inc. 24.864 29.952 35.904 43.776 52.512 (X6)

Investments Total Working Cap. 12.8 16 16 19.2 19.2 Fixed Assets 9.6 16 11.52 76.8 4.48 Total 22.4 32 27.52 96 23.68

Sources Of Finance New Debt. 22.4 10.24 10.24 9.6 7.68 Profit Retention 0 21.76 17.28 17.28 16 Total 22.4 32 27.52 26.88 23.68

Stock in Birdie Golf currently sells for $94 per share, and the company has 11.6 million shares of stock outstanding. Hybrid Golf has 5.2 million common shares outstanding.

Both companies can borrow at an 8 percent interest rate. The risk-free rate is 6 percent, and the expected return on the market is 13 percent. Bryce believes the current cost of capital for Birdie Golf is 11 percent. The beta for Hybrid Golf stock at its current capital structure is 1.30.

Bryce has asked you to analyze the financial aspects of the potential merger. Specifically, he has asked you to perform the following tasks:

1)Determine the existing (Using 0.5:1 debt: equity ratio) WACC and new WACC (Using 1:1 debt: equity ratio) of Hybrid.

2)Derive the free cash flows to equity (FCFE) of Hybrid Corp. for each of the years 20X2 to 20X6.

3)Determine the highest (maximum) price per share that Birdie should be willing to pay for Hybrid? Thank you so much in advance and please show as much of the work as you can. Thanks!