Calculate target firm's levered cost of equity

$r_{sL}$

Calculate target firm's unlevered cost of equity

$r_{su}$

Calculate target firm's unlevered value:

Unlevered horizon value of FCF

Unlevered value of operations

Calculate value of interest tax shields:

Tax shield, Year $1$

Tax shield, Year $2$

Tax shield, Year $3$

Tax shield, Year $4$

Tax shield, Horizon value

Value of tax shields

Calculate target firm's per share value to acquiring firm:

Value of operations

Target firm's equity value to acquiring firm

Per share value to acquiring firm

$9\mathrm{.}80\%=(B{4}^{**}(B)9)+(B{5}^{**}(B)23)$Question $10/10$

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Excel Online Structured Activity: Merger Valuation

Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has $1$ million shares outstanding and a target capital structure consisting of $30\%$ debt. Vandell's debt interest rate is $7\mathrm{.}7\%.$ Assume that the risk$-$free rate of interest is $3\%$ and the market risk premium is $7\%.$ Both Vandell and Hastings face a $30\%$ tax rate.

Hastings estimates that if it acquires Vandell, interest payments will be $$1,600,000$ per year for $3$ years after which the current target capital structure of $30\%$ debt will be maintained. Interest in the fourth year will be $$1\mathrm{.}487$ million after which interest and the tax shield will grow at $4\%.$ Synergies will cause the free cash flows to be $$2\mathrm{.}4$ million, $$3\mathrm{.}0$ million, $$3\mathrm{.}3$ million, and then $$3\mathrm{.}54$ million in Years $1$ through $4,$ respectively, after which the free cash flows will grow at a $4\%$ rate.

The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

What is the unlevered value of Vandell? Vandell's beta is $1\mathrm{.}10.$ Enter your answer in dollars. For example, an answer of $$1\mathrm{.}2$ million should be entered as $1,200,000,$ not $1\mathrm{.}2.$ Do not round intermediate calculations. Round your answer to two decimal places.

$ fill in the blank $2$

$51,871,241$

What is the value of its tax shields? Enter your answer in dollars. For example, an answer of $$1\mathrm{.}2$ million should be entered as $1,200,000,$ not $1\mathrm{.}2.$ Do not round intermediate calculations. Round your answer to two decimal places.

$ fill in the blank $3$

$45,176,437$

What is the per share value of Vandell to Hastings Corporation? Assume Vandell now has $$8\mathrm{.}85$ million in debt. Do not round intermediate calculations. Round your answer to the nearest cent.

$ fill in the blank $4$

$88\mathrm{.}20$

per share