BUSI 323 HOMEWORK 4 INSTRUCTIONS Chapeers 20-21 Suppose that HCA and Tenet were to merge. Ignoring potential antitrust problems, how would this merger be classified? 1. 2. List some reasons that are good motives for mergers 3. Use the following data for a home health firm to answer questions. Net income after taxes Depreciation Interest Capital Expenditures Working Capital Expenditures Long-Term Debt Income Taxes $1,000,000 300,000 100,000 400,000 500,000 1,000,000 400,000 4. What is the current value of free cash flow? 5. Using a 20 EBITDA (Eamings before Interest, Taxes, Depreciation and Amortization). what is the value of the firm's equity? 6. Dublin Medical (DM), a large established corporation with no growth in its real earnings. is considering acquiring 100% of the shares of Arlington Corporation, a young firm with a high growth rate of earnings. The acquisitions analysis group at DM has produced the following table of relevant data: Eamings per share Dividend per share Number of shares Stodk price Dubin Medical Arlington $3.00 $3.00 200 million $30 S2.00 S.so 10 million $20 DM's analysts estimate that investors currently expect growth of about 6% per year in Arlington's camings and dividends. They assume that with the improvements in management that DM could bring to Arlington, its growth rate would be 10% per year beginning one year from now with no additional investment outlays beyond those already expected 7. What is the expected gain from the acquisition? 8. What is the net present value (NPV) of the acquisition to DM shareholders if it costs an average $30 per share to acquire all of the outstanding shares? Page 1 of2 BUSI 323 HOMEWORK 4 INSTRUCTIONS Chapeers 20-21 Suppose that HCA and Tenet were to merge. Ignoring potential antitrust problems, how would this merger be classified? 1. 2. List some reasons that are good motives for mergers 3. Use the following data for a home health firm to answer questions. Net income after taxes Depreciation Interest Capital Expenditures Working Capital Expenditures Long-Term Debt Income Taxes $1,000,000 300,000 100,000 400,000 500,000 1,000,000 400,000 4. What is the current value of free cash flow? 5. Using a 20 EBITDA (Eamings before Interest, Taxes, Depreciation and Amortization). what is the value of the firm's equity? 6. Dublin Medical (DM), a large established corporation with no growth in its real earnings. is considering acquiring 100% of the shares of Arlington Corporation, a young firm with a high growth rate of earnings. The acquisitions analysis group at DM has produced the following table of relevant data: Eamings per share Dividend per share Number of shares Stodk price Dubin Medical Arlington $3.00 $3.00 200 million $30 S2.00 S.so 10 million $20 DM's analysts estimate that investors currently expect growth of about 6% per year in Arlington's camings and dividends. They assume that with the improvements in management that DM could bring to Arlington, its growth rate would be 10% per year beginning one year from now with no additional investment outlays beyond those already expected 7. What is the expected gain from the acquisition? 8. What is the net present value (NPV) of the acquisition to DM shareholders if it costs an average $30 per share to acquire all of the outstanding shares? Page 1 of2