Exet Online Strochred Activity: Merger valuation with Change in Capital Structure. Hastings. Corporotion is interested in acquiring Vandell Corparation: Vandell has 1 million shares outstanding and a target capital structure conbisting of 30% debt. Wandell's detic inteiest rate is 7.7\%. Assume that the risk. free rate of interest is. 5% and the market risk premium is 8% Both Vanidell and Hastings face a 35% Vandall's beta if 1,10. Hastings estimates that if it acquires Vandell, interest peyments will be 51,500,000 per vear for 3 years. The free cash flows are supposed to be 52.3 million, $2.9 milion, $3.4 million, and then $3.87 mallion in Years 1 through 4 , respectively. Suppose Hactings will inciease Vandell's levril of debt at the end of Year 3 to $34,7 milion so that the target capital structure will be 45% debt. Assume that wheh this higher level of debe the interest rate would be 8.0%, and assume that interest payments in Year 4 are based on the new debt level from the end of Year 3 and new interest rate. Free cash flows and tax shields are projected to craw at 5% ofter Year 4 The data has been coliected in the Mcrosolt Excel Online file beloo. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet What is the value of the unlevered firm? Enter your answer in dollars. For example, an answer of 31,2, million should be entored as 1, 200, 000, not 1.2, Do not found intermediate calculations. Round yoor answer to two decimal places. 1 What is the valoe of the tax shicid? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, aot 1,2 , Do not raund intermedime cilculations. Round your answer fo two decimal places. Year 3 to 434.7 mulhon so that the tatget cabital structure will be 45% debt. Assume that with the halier level ot debe the interest rato would be 8.0%. and assume that interest payments in Year 4 sre based on the new deht level from the end of Year 3 and new interest rate. Free cash flows and tax shiclds are projected to grow at 500 atter Year 4. The dota bas been collected in the Microsolt Excel Online file below, Open the spreadsheet and perform the requed analysis to answer the questions below. Openspreadsheet What it the value of the unlevered firm? Enter your answhe in dollars. For exemple; an answer of 51 i. mallon should be entered as 1,200, 000, not 1.2. Do not rountd intermedote calculations. Round your answer to two decimal places. What is the value of the tax shield? Enter your answer in dollars. For example, an answer of $1.2 milion should be entered os 1,200,000, not t.2. Do not round internedate calculotions. found your answer to two decmal places. 1 What is the mbximwim tatal price that Hastings would bid for Vandell now? Assume Vandell now has 510.75 million in debt. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2. Do not round intermediate calculations: hound your answer to two decimal places Exet Online Strochred Activity: Merger valuation with Change in Capital Structure. Hastings. Corporotion is interested in acquiring Vandell Corparation: Vandell has 1 million shares outstanding and a target capital structure conbisting of 30% debt. Wandell's detic inteiest rate is 7.7\%. Assume that the risk. free rate of interest is. 5% and the market risk premium is 8% Both Vanidell and Hastings face a 35% Vandall's beta if 1,10. Hastings estimates that if it acquires Vandell, interest peyments will be 51,500,000 per vear for 3 years. The free cash flows are supposed to be 52.3 million, $2.9 milion, $3.4 million, and then $3.87 mallion in Years 1 through 4 , respectively. Suppose Hactings will inciease Vandell's levril of debt at the end of Year 3 to $34,7 milion so that the target capital structure will be 45% debt. Assume that wheh this higher level of debe the interest rate would be 8.0%, and assume that interest payments in Year 4 are based on the new debt level from the end of Year 3 and new interest rate. Free cash flows and tax shields are projected to craw at 5% ofter Year 4 The data has been coliected in the Mcrosolt Excel Online file beloo. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet What is the value of the unlevered firm? Enter your answer in dollars. For example, an answer of 31,2, million should be entored as 1, 200, 000, not 1.2, Do not found intermediate calculations. Round yoor answer to two decimal places. 1 What is the valoe of the tax shicid? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, aot 1,2 , Do not raund intermedime cilculations. Round your answer fo two decimal places. Year 3 to 434.7 mulhon so that the tatget cabital structure will be 45% debt. Assume that with the halier level ot debe the interest rato would be 8.0%. and assume that interest payments in Year 4 sre based on the new deht level from the end of Year 3 and new interest rate. Free cash flows and tax shiclds are projected to grow at 500 atter Year 4. The dota bas been collected in the Microsolt Excel Online file below, Open the spreadsheet and perform the requed analysis to answer the questions below. Openspreadsheet What it the value of the unlevered firm? Enter your answhe in dollars. For exemple; an answer of 51 i. mallon should be entered as 1,200, 000, not 1.2. Do not rountd intermedote calculations. Round your answer to two decimal places. What is the value of the tax shield? Enter your answer in dollars. For example, an answer of $1.2 milion should be entered os 1,200,000, not t.2. Do not round internedate calculotions. found your answer to two decmal places. 1 What is the mbximwim tatal price that Hastings would bid for Vandell now? Assume Vandell now has 510.75 million in debt. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2. Do not round intermediate calculations: hound your answer to two decimal places
