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Earnings (end of year. In millions) Shares outstanding fin millions) Stock price Debr in millions) Equity beta Cost of debt Tax rate Firm Hoyaco Saxa

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Earnings (end of year. In millions) Shares outstanding fin millions) Stock price Debr in millions) Equity beta Cost of debt Tax rate Firm Hoyaco Saxa Inc $ $ 2,015 2,980 4255 1,050 $ 50.00 S 25.00 $ 12,200 986 0.93 1.2 4.25% 5.25% 35% 35% a HoyaCo wants to buy Saxa Inc., and believes that Saxa Inc. could stand to have more leverage, which would generate additional tax shields. So, the management at Hoyaco plans to increase Saxa Inc.'s debt so itsleverage ratio (debt to market equity) is 0.35. Assume that the risk-free rate is 3%, and that the market risk premium is 7%. Assume that the cost of debt is unaffected by the increased leverage You can assume the beta of debt -0. The deal will create some synergies, as it is believed that much of Saxa's back office functions can be accomplished with Hoya's existing infrastructure. Analysts expect after-tax cost savings of $6 million per year, which will grow at 3% per year in perpetuity. What is the market value of equity for the merged company? Market equity value of merged company Earnings (end of year. In millions) Shares outstanding fin millions) Stock price Debr in millions) Equity beta Cost of debt Tax rate Firm Hoyaco Saxa Inc $ $ 2,015 2,980 4255 1,050 $ 50.00 S 25.00 $ 12,200 986 0.93 1.2 4.25% 5.25% 35% 35% a HoyaCo wants to buy Saxa Inc., and believes that Saxa Inc. could stand to have more leverage, which would generate additional tax shields. So, the management at Hoyaco plans to increase Saxa Inc.'s debt so itsleverage ratio (debt to market equity) is 0.35. Assume that the risk-free rate is 3%, and that the market risk premium is 7%. Assume that the cost of debt is unaffected by the increased leverage You can assume the beta of debt -0. The deal will create some synergies, as it is believed that much of Saxa's back office functions can be accomplished with Hoya's existing infrastructure. Analysts expect after-tax cost savings of $6 million per year, which will grow at 3% per year in perpetuity. What is the market value of equity for the merged company? Market equity value of merged company

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