Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.6%. Assume that the risk-free rate of interest is 3% and the market risk premium is 6%. Both Vandell and Hastings face a 40% tax rate.

Vandell's beta is 1.30. Hastings estimates that if it acquires Vandell, interest payments will be $1,500,000 per year for 3 years. The free cash flows are supposed to be $2.3 million, $2.7 million, $3.3 million, and then $3.80 million in Years 1 through 4, respectively. Suppose Hastings will increase Vandell's level of debt at the end of Year 3 to $31.9 million so that the target capital structure will be 45% debt. Assume that with this higher level of debt the interest rate would be 8.5%, 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 grow at 5% after Year 4.

The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

What is the value of the unlevered firm? 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. Round your answer to two decimal places.

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What is the value of the tax shield? 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. Round your answer to two decimal places.

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What is the maximum total price that Hastings would bid for Vandell now? Assume Vandell now has $11.18 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. Round your answer to two decimal places.

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Tell me what you want to do File Home Insert Data Review View Lesson 10: Mergers - CCSU 20007.20202010 Help A = = CD Copy Paste Copy 5 Wrap Text Merge & Center BIUD A D $ % 689 Insert Delete Forr *Format Painter Clipboard Conditional Format Formatting as Table Tables Font Alignment Number Cells Undo B28 D E F G H I 26 27 Calculate target firm's levered cost of equity Formulas #N/A 30 31 Calculate target firm's unlevered cost of equity Tsu #N/A 33 #NA #N/A Calculate target firm's unlevered value: 34 Unlevered horizon value of FCF 35 Unlevered value of operations 36 Calculate value of interest tax shields: 38 Tax shield, Year 1 39 Tax shield, Year 2 40 Tax shield, Year 3 41 Tax shield, Year 4 Tax shield, Horizon value #N/A #N/A #N/A #N/A #N/A 42 43 44 Value of tax shields #N/A 45 46 Calculate target firm's per share value to acquiring firm: 47 Value of operations 48 Target firm's equity value to acquiring firm Per share value to acquiring firm #N/A #N/A #N/A