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 7.4%. Assume that the risk-free rate of interest is 6% and the market risk premium is 5%. Both Vandell and Hastings face a 35% tax rate. Hastings estimates that if it acquires Vandell, interest payments will be $1,500,000 per year for 3 years after which the current target capital structure of 30% debt will be maintained. Interest in the fourth year will be $1.474 million after which interest and the tax shield will grow at 4%. Synergies will cause the free cash flows to be $2.5 million, $2.9 million, 53.4 million, and then $3.60 million in Years 1 through 4, respectively, after which the free cash flows will grow at a 4% rate. 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. Open spreadsheet What is the unlevered value of Vandell? Vandell's beta is 1.10. 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. What is the value of its tax shields? 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. What is the per share value of Vandell to Hastings Corporation? Assume Vandell now has $11.82 million in debt. Do not round intermediate calculations. Round your answer to the nearest cent. per share 1 Merger Valuation Current target capital structure: Debt Equity 6 Number of common shares outstanding Current debt amount 30.00% 70.00% 1,000,000 $11,820.000 9 Debt interest rate 10 Risk-free rate 11 Market risk premium Tax rate Beta 14 Interest payments, Years 1 - 3 15 Interest payment Year 4 16 Growth rate 17 Free cash flow. Year 1 Free cash flow. Year 2 10 Free cash flow. Year 3 20 Free cash flow. Year 4 7.4096 6.0096 5.00% 35.0096 1.10 $1,500,000 $1,474,000 4.00% $2,500,000 $2,900.000 $3,400.000 $3,600,000 22 Calculate target firm's levered cost of equity Formulas 12.10% =(810+811)*813 25 26 Calculate target firm's unlevered cost of equity su 10.69% =(B4*89)+(85*823) 28 Calculate target firm's unlevered value: 29 Unlevered horizon value of FCF 30 Unlevered value of operations UNIA 32 Calculate value of interest tax shields: 33 Tax shield. Year 1 34 Tax shield. Year 2 35 Tax shield. Year 3 36 Tax shield. Year 4 37 Tax shield, Horizon value S525,000 =B14B12 S525,000 =B14"B12 $525.000 =B14 B12 S515.900 =B15*B12 $8.019.970 =(B381.047(B26-B16) $6.975.996 =B33/(1+B26)+B34/(1+B262835/(1+B263+(B36+B37/(1+B2674 39 Value of tax shields 40 41 Calculate target firm's per share value to acquiring firm: 42 Value of operations 43 Target firm's equity value to acquiring firm 44 Per share value to acquiring firm #N/A NA #N/A 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 7.4%. Assume that the risk-free rate of interest is 6% and the market risk premium is 5%. Both Vandell and Hastings face a 35% tax rate. Hastings estimates that if it acquires Vandell, interest payments will be $1,500,000 per year for 3 years after which the current target capital structure of 30% debt will be maintained. Interest in the fourth year will be $1.474 million after which interest and the tax shield will grow at 4%. Synergies will cause the free cash flows to be $2.5 million, $2.9 million, 53.4 million, and then $3.60 million in Years 1 through 4, respectively, after which the free cash flows will grow at a 4% rate. 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. Open spreadsheet What is the unlevered value of Vandell? Vandell's beta is 1.10. 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. What is the value of its tax shields? 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. What is the per share value of Vandell to Hastings Corporation? Assume Vandell now has $11.82 million in debt. Do not round intermediate calculations. Round your answer to the nearest cent. per share 1 Merger Valuation Current target capital structure: Debt Equity 6 Number of common shares outstanding Current debt amount 30.00% 70.00% 1,000,000 $11,820.000 9 Debt interest rate 10 Risk-free rate 11 Market risk premium Tax rate Beta 14 Interest payments, Years 1 - 3 15 Interest payment Year 4 16 Growth rate 17 Free cash flow. Year 1 Free cash flow. Year 2 10 Free cash flow. Year 3 20 Free cash flow. Year 4 7.4096 6.0096 5.00% 35.0096 1.10 $1,500,000 $1,474,000 4.00% $2,500,000 $2,900.000 $3,400.000 $3,600,000 22 Calculate target firm's levered cost of equity Formulas 12.10% =(810+811)*813 25 26 Calculate target firm's unlevered cost of equity su 10.69% =(B4*89)+(85*823) 28 Calculate target firm's unlevered value: 29 Unlevered horizon value of FCF 30 Unlevered value of operations UNIA 32 Calculate value of interest tax shields: 33 Tax shield. Year 1 34 Tax shield. Year 2 35 Tax shield. Year 3 36 Tax shield. Year 4 37 Tax shield, Horizon value S525,000 =B14B12 S525,000 =B14"B12 $525.000 =B14 B12 S515.900 =B15*B12 $8.019.970 =(B381.047(B26-B16) $6.975.996 =B33/(1+B26)+B34/(1+B262835/(1+B263+(B36+B37/(1+B2674 39 Value of tax shields 40 41 Calculate target firm's per share value to acquiring firm: 42 Value of operations 43 Target firm's equity value to acquiring firm 44 Per share value to acquiring firm #N/A NA #N/A