Question
I need help with this question. I am unable to upload the excel sheet so I saved it in the google drives link below. https://drive.google.com/file/d/10yGDvNnF2unrLQrWO9O-LDzAFxYvGhhk/view?usp=sharing
I need help with this question. I am unable to upload the excel sheet so I saved it in the google drives link below.
https://drive.google.com/file/d/10yGDvNnF2unrLQrWO9O-LDzAFxYvGhhk/view?usp=sharing
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 7% and the market risk premium is 6%. Both Vandell and Hastings face a 40% 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 $1.409 million after which interest and the tax shield will grow at 5%. Synergies will cause the free cash flows to be $2.5 million, $3.0 million, $3.4 million, and then $3.67 million in Years 1 through 4, respectively, after which the free cash flows will grow at a 5% rate.
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.
$fill in the blank 2
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.
$fill in the blank 3
What is the per share value of Vandell to Hastings Corporation? Assume Vandell now has $10.25 million in debt. Do not round intermediate calculations. Round your answer to the nearest cent.
$fill in the blank 4per share
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started