Hastings Corporation is interested in acquiring Vandell Corporation. I have provided you some information on Vandell to the right. Before beginning the M&A process, Hastings wants to estimate the intrinsic value of Vandell.

a) What are Vandell's cost of equity and WACC?

b) What is Vandell's intrinsic value of operations?

c) What is the current intrinsic value of their stock?

After estimating the synergies that the merger will create, Hastings forecasts Vandell's free cash flows for the next four years. See the table to the right. After Year 4, they assume that FCF will grow at 5% forever. Hastings plans to assume Vandell's debt and to raise additional debt to finance the purchase. I have provided you with pro-forma interest payment forecasts to the right. As of Year 4, Hastings will be able to maintain their target capital structure of 30% debt. You can also assume that interest payments and the tax shield will grow at 5% forever after Year 4.

d) What is Vandell's pre-acquisition levered cost of equity? What is its unlevered cost of equity?

e) What is the intrinsic value of operations today (t = 0), assuming that synergies are realized?

f) What is the value of the tax shields today?

g) What is the total intrinsic value of operations today? What is the intrinsic value of Vandell's equity to Hastings? What is Vandell's intrinsic stock price per share?

h) Given your work above, what is the range of possible prices that Hastings could bid for each share of Vandell common stock in an acquisition?

PLEASE USE EXCEL AND SHOW ALL FORMULAS.

Market Information			Vandell Information
Risk-Free Rate	5%		Beta	1.4
Equity Risk Premium (ERP)	6%		Weight of Debt	30%
			Weight of Equity	70%
			Cost of Debt	8%
			Book Value of Debt	$ 10.82	(millions, trading at par)
			Tax Rate	40%
			FCF Growth Rate	5%
			FCF (Today)	$ 2.00	(millions)
			Shares Outstanding	1.00	(millions)
	Pro-Forma FCF and Interest Payment Estimates
	1	2	3	4
FCF	$ 2.50	$ 2.90	$ 3.40	$ 3.57
Interest	$ 1.50	$ 1.50	$ 1.50	$ 1.47