Company A with excess cash is considering the acquisition of company B Company A estimates of Bscamnings potential comos under As management in millions of dollars). The interest expense listed here includes the interest (t) on B's existing dobl. 2) on new dobt that A would issue to help finance the acquisition and (3) on now debt expected to be issued over time to help finance expansion within the new 'B division, the code name given to the target firm The retentions represent earnings that will be reinvested within the division to help finance its growth Comoany currently uses 25% debt financing and it pays federal-plus stato taxes at a 30% rato. Secunty analysts estimato B's bota to be 1.17 If the acquisition wore to take place A's would increase B's debt ratito 35%, which would increase B's beta to 142. Further because company is highly profitable taxes on the consolidated firm would be 32% Depreciation cash flows would have to be reinvested within the division to replace wom-out equipment You estimate the risk-frcerate to be 2% and the market risk pumium 7 You also estimate that cash flows attor 2021 will grow at a constant rate of 4 Theater tax cost of dubt5 6.5% The table presents estimates of the company B's data for merger analysis 2021 2024 2022 2023 Net Sales COGS 1000,000 400 000 100,000 2.000.000 500.000 100 000 3.000.000 700.000 4,000 000 900.000 150.000 Selling & Admin Expenses 120.000 Interest Expense 200.000 200.000 400.000 200.000 Necessary Retained Carnings 200.000 500.000 400,000 500,000 ? What is the cash flow for year 2024 (The cash tow to be used for mergera $115.05.31773 510,314 50438 25343.080 43 5121 262 370 25 596.271.43015 Company A with excess cash is considering the acquisition of company B Company A estimates of Bscamnings potential comos under As management in millions of dollars). The interest expense listed here includes the interest (t) on B's existing dobl. 2) on new dobt that A would issue to help finance the acquisition and (3) on now debt expected to be issued over time to help finance expansion within the new 'B division, the code name given to the target firm The retentions represent earnings that will be reinvested within the division to help finance its growth Comoany currently uses 25% debt financing and it pays federal-plus stato taxes at a 30% rato. Secunty analysts estimato B's bota to be 1.17 If the acquisition wore to take place A's would increase B's debt ratito 35%, which would increase B's beta to 142. Further because company is highly profitable taxes on the consolidated firm would be 32% Depreciation cash flows would have to be reinvested within the division to replace wom-out equipment You estimate the risk-frcerate to be 2% and the market risk pumium 7 You also estimate that cash flows attor 2021 will grow at a constant rate of 4 Theater tax cost of dubt5 6.5% The table presents estimates of the company B's data for merger analysis 2021 2024 2022 2023 Net Sales COGS 1000,000 400 000 100,000 2.000.000 500.000 100 000 3.000.000 700.000 4,000 000 900.000 150.000 Selling & Admin Expenses 120.000 Interest Expense 200.000 200.000 400.000 200.000 Necessary Retained Carnings 200.000 500.000 400,000 500,000 ? What is the cash flow for year 2024 (The cash tow to be used for mergera $115.05.31773 510,314 50438 25343.080 43 5121 262 370 25 596.271.43015
