d.

1. Firm A is considering the acquisition of Firm B. For Firm A, PV = $4,000 and N= 100. For Firm B, PV = $1,200 and N = 80. Proforma financial information for Firm AB is below; the appropriate discount rate for Firm AB is 15%. After year 20, you will assume that the cash flow from year 20 will then grow at 2% forever. The tax rate is 25%. Firm AB Years 1-6 Year 7 Years 8-14 Year 15 Years 16-20 Sales 2,100 2,700 2,700 3,000 2,700 _ 200 Depreciation 200 210 210 300 EBIT is assumed to be 60% of Sales. 300 300 300 100 200 Interest Capital Expenditures 800 1000 Increases in Working Capital is 10% of the change in sales; invested the period before the sales increase. Principal Payment 0 0 500 0 (12) a. Calculate the PV of AB. In your calculations, round your numbers to the nearest whole number (e.g. 1544.78 rounds to 1545). (4) b. Suppose the owners of B ask for a time 0 cash payment of $1,800. If A accepts, what will the split of the GAIN be (in dollars)? (4) C. Suppose the owners of B ask for an exchange of common shares, and they want to have a 25% ownership in the merged firm? What would be the COST and the NPV? What exchange ratio are the B owners requesting? (4) d. Suppose A agrees to the split of the GAIN in part c, but only wants to give B a 20% ownership. How much time 0 cash must now be offered, with the 20% ownership, to achieve the same split as in part c? (4) e. Suppose A agrees to the split of the GAIN in part c, but wants to pay with shares of preferred stock. The preferred will have a $2.50 per share dividend and the market requires an 8% return on their preferred stock. How many preferred stock shares would A have to give B? Firm A is considering the acquisition of Firm B. For Firm A, PV = $4,000 and N= 100. For Firm B, PV = $1,200 and N = 80. Proforma financial information for Firm AB is below; the appropriate discount rate for Firm AB is 15%. After year 20, you will assume that the cash flow from year 20 will then grow at 2% forever. The tax rate is 25%. Firm AB Years 1-6 Year 7 Years 8-14 Year 15 Years 16-20 Sales 2,100 2,700 2,700 2,700 3,000 Depreciation 200 _ 200 210 210 300 EBIT is assumed to be 60% of Sales. 300 300 300 100 200 Interest Capital Expenditures 0 800 0 10000 Increases in Working Capital is 10% of the change in sales; invested the period before the sales increase. Principal Payment 0 0 0 5000 d. Suppose A agrees to the split of the GAIN in part c, but only wants to give B a 20% ownership. How much time 0 cash must now be offered, with the 20% ownership, to achieve the same split as in part c? Suppose A agrees to the split of the GAIN in part c, but wants to pay with shares of preferred stock. The preferred will have a $2.50 per share dividend and the market requires an 8% return on their preferred stock. How many preferred stock shares would A have to give B? 1. Firm A is considering the acquisition of Firm B. For Firm A, PV = $4,000 and N= 100. For Firm B, PV = $1,200 and N = 80. Proforma financial information for Firm AB is below; the appropriate discount rate for Firm AB is 15%. After year 20, you will assume that the cash flow from year 20 will then grow at 2% forever. The tax rate is 25%. Firm AB Years 1-6 Year 7 Years 8-14 Year 15 Years 16-20 Sales 2,100 2,700 2,700 3,000 2,700 _ 200 Depreciation 200 210 210 300 EBIT is assumed to be 60% of Sales. 300 300 300 100 200 Interest Capital Expenditures 800 1000 Increases in Working Capital is 10% of the change in sales; invested the period before the sales increase. Principal Payment 0 0 500 0 (12) a. Calculate the PV of AB. In your calculations, round your numbers to the nearest whole number (e.g. 1544.78 rounds to 1545). (4) b. Suppose the owners of B ask for a time 0 cash payment of $1,800. If A accepts, what will the split of the GAIN be (in dollars)? (4) C. Suppose the owners of B ask for an exchange of common shares, and they want to have a 25% ownership in the merged firm? What would be the COST and the NPV? What exchange ratio are the B owners requesting? (4) d. Suppose A agrees to the split of the GAIN in part c, but only wants to give B a 20% ownership. How much time 0 cash must now be offered, with the 20% ownership, to achieve the same split as in part c? (4) e. Suppose A agrees to the split of the GAIN in part c, but wants to pay with shares of preferred stock. The preferred will have a $2.50 per share dividend and the market requires an 8% return on their preferred stock. How many preferred stock shares would A have to give B? Firm A is considering the acquisition of Firm B. For Firm A, PV = $4,000 and N= 100. For Firm B, PV = $1,200 and N = 80. Proforma financial information for Firm AB is below; the appropriate discount rate for Firm AB is 15%. After year 20, you will assume that the cash flow from year 20 will then grow at 2% forever. The tax rate is 25%. Firm AB Years 1-6 Year 7 Years 8-14 Year 15 Years 16-20 Sales 2,100 2,700 2,700 2,700 3,000 Depreciation 200 _ 200 210 210 300 EBIT is assumed to be 60% of Sales. 300 300 300 100 200 Interest Capital Expenditures 0 800 0 10000 Increases in Working Capital is 10% of the change in sales; invested the period before the sales increase. Principal Payment 0 0 0 5000 d. Suppose A agrees to the split of the GAIN in part c, but only wants to give B a 20% ownership. How much time 0 cash must now be offered, with the 20% ownership, to achieve the same split as in part c? Suppose A agrees to the split of the GAIN in part c, but wants to pay with shares of preferred stock. The preferred will have a $2.50 per share dividend and the market requires an 8% return on their preferred stock. How many preferred stock shares would A have to give B