Company A with excess cash is considering the acquisition of company B Company A estimates of B's earnings potontial if it comes under As management millions of dollars) The interest exponse listed here includes the interest (1) on B's existing debt (2) on new debt 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 Company B currently uses 25% debt financing and it pays foderal plus state taxes at a 30% rato. Secunty analysis estimate B's beta to be 1 17 If the acquisition were to take place, A's would increase B's debt ratio to 35% which would increase B's bets to 142. Further because company A is highly profitable, laxes 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 nsk free rate to be 29 and the market risk premium 7% You also estimate that cash flows after 2021 will grow at a constant role of 4%. Thester tax cost of debt is 65% The table presents estimates of the company's data for merger analysis 2021 2002 2023 2024 Net Sales 1,000 000 2,000,000 3.000.000 4.000 000 COGS 400 000 500,000 700.000 900 000 Selling & Admin 100 000 100.000 120 000 150 000 Expenses Interest Expense 200,000 200 000 200 000 200.000 Necessary Retained 400.000 400 000 5000 Earnings 500 000 What is the value of company to company A? $27.311.304 20 $87152 207 13 $31.084 1050B $13.001 420 41 501 683 400 03 Click Save and to be and submit. Click Se All Ar e al Save All Company A with excess cash is considering the acquisition of company B Company A estimates of B's earnings potontial if it comes under As management millions of dollars) The interest exponse listed here includes the interest (1) on B's existing debt (2) on new debt 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 Company B currently uses 25% debt financing and it pays foderal plus state taxes at a 30% rato. Secunty analysis estimate B's beta to be 1 17 If the acquisition were to take place, A's would increase B's debt ratio to 35% which would increase B's bets to 142. Further because company A is highly profitable, laxes 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 nsk free rate to be 29 and the market risk premium 7% You also estimate that cash flows after 2021 will grow at a constant role of 4%. Thester tax cost of debt is 65% The table presents estimates of the company's data for merger analysis 2021 2002 2023 2024 Net Sales 1,000 000 2,000,000 3.000.000 4.000 000 COGS 400 000 500,000 700.000 900 000 Selling & Admin 100 000 100.000 120 000 150 000 Expenses Interest Expense 200,000 200 000 200 000 200.000 Necessary Retained 400.000 400 000 5000 Earnings 500 000 What is the value of company to company A? $27.311.304 20 $87152 207 13 $31.084 1050B $13.001 420 41 501 683 400 03 Click Save and to be and submit. Click Se All Ar e al Save All
