im group number 6, please use that information only to answer the question please

Case #3: Mergers and Acquisitions: Due Wednesday, November 18, 2020 Hager's Home Repair Company, a regional hardware chain that specializes in "do it yourcell materials and equipment rentals, is cash rich because of several consecutive good years. One of the alternative uses for the excess funds is an acquisition Doug Zona, Hager's treasurer and your boss, has been asked to place a value on a potential target, Lyons Lighting (LL), a chain that operates in several adjacent states, and he has enlisted your help. The table below indicates Zona's estimates of Lu's earnings potential if it came under Hager's management (in millions of dollars). The interest expense listed here includes the interest: (1) on It's existing debt, which is $63 million at a rate of 9%, and (2) on new debt expected to be issued over time to help finance expansion within the new "1. division," the code name given to the target firm. If acquired, LL will face a 35% tax rate Security analysts estimate LL's beta. The acquisition would not change Lyons' capital structure, which is 22% debt. Zona realizes that Lyons Lighting's business plan also requires certain levels of operating capital and that the annual investment could be significant. The required levels y of total net operating capital are listed in the table Zona estimates the risk-free rate and the market risk premium. He also estimates that free cash flows after 2020 will grow at a constant rate. Following are projections for sales and other items Group Group 1 2 1.35 1.25 Group 3 Group Group 4 5 1.45 15 Group 6 Group Group Group Group Group 7 8 9 10 11 1.4 1.45 1.6 1.65 1.65 LL's beta 1.3 1.5 Risk-free rate 7.20% 7.50% 7.80% 6.30% 6.70% 7.00% 7.30% 7.60% 6,10% 6.50% 6.80% Mit risk premium 4.75%5.20% 5.47% 4.33% 4,60% 4.85% 5.30% 5.57% 4.43% 4.70% 4.95% 4.95% Free cash flow growth rate 6% 5.20% 4% 3.78% 3.69% 5.75% 3.75% 3.53% 3.449 350% fax pre-merger % debt pre merger debt SMA pre-merger debt nd 99 22% 2015 Net Sales Lost of Goods Sold Selling /Administrative Expense Interest Expense Total Net Operating Capital Instient in Net Operating Capital 2016 $60.00 $36.00 $4.80 $5.00 150 $0.00 2017 $90,00 $54.00 $6.10 $6.50 157.5 $7.50 2018 2019 2020 $112.50 $127.50 $139.70 $67.50 $76.50 $83.80 $7.60 $9.20 $11 30 $6.50 $7.00 $8.16 163.5 168 173 $6.00 $4.50 $5.00 $150.00 Hoger's management is new to the merger game, so Zona has been asked to answer some basic questions about mergers as well as to perform the merger analysis. To structure the task, Zona has developed the following questions, which you must answer and then defend to Hager's board a. Briefly describe the difference between a hostile merger and a friendly merger. b. Use the data developed in the table to construct the L division's free cash flows for 2016 through 2020. Why are we identifying interest expense separately when it is not normally included in calculating free cash flows or in a capital budgeting cash flow analysis? Why is investment in net operating capital included when calculating the free cash flow? c Conceptually, what is the appropriate discount rate to apply to the cash flows developed in part b? What is your actual estimate of this discount rate? d. What is the estimated horizon, or continuine, value of the acquisition, that is, what is the estimated value of the L division's cash flows beyond 2020? What is u's value to Hager's shareholders? Suppose another firm were evaluating LL as an acquisition candidate. Would it obtain the same value? Explain. e Assume that Ll has 22 million shares outstanding. These shares are traded relatively infrequently, but the last trade (made several weeks ago) was at a price of $11 per share. Should Hager's make an offer for Lyons Lighting? If so, how much should it offer per share? f. How would the analysis be different if Hager's intended to recapitalize Lt. with 40% debt costing 10% at the end of 4 years? This amounts to $221.6 million in debt as of the end of 2019 What are the major types of divestitures? What motivates firms to divest assets ? Submission instructions: Please submit parts a-g by modifying this word document to contain your solutions, and by submitting an excel file so I may observe the cause of any errors in calculation. All charts must be titled with axes which are appropriately labeled and formatted Submit the two documents as a group. Please abide by policies related to academic integrity Case #3: Mergers and Acquisitions: Due Wednesday, November 18, 2020 Hager's Home Repair Company, a regional hardware chain that specializes in "do it yourcell materials and equipment rentals, is cash rich because of several consecutive good years. One of the alternative uses for the excess funds is an acquisition Doug Zona, Hager's treasurer and your boss, has been asked to place a value on a potential target, Lyons Lighting (LL), a chain that operates in several adjacent states, and he has enlisted your help. The table below indicates Zona's estimates of Lu's earnings potential if it came under Hager's management (in millions of dollars). The interest expense listed here includes the interest: (1) on It's existing debt, which is $63 million at a rate of 9%, and (2) on new debt expected to be issued over time to help finance expansion within the new "1. division," the code name given to the target firm. If acquired, LL will face a 35% tax rate Security analysts estimate LL's beta. The acquisition would not change Lyons' capital structure, which is 22% debt. Zona realizes that Lyons Lighting's business plan also requires certain levels of operating capital and that the annual investment could be significant. The required levels y of total net operating capital are listed in the table Zona estimates the risk-free rate and the market risk premium. He also estimates that free cash flows after 2020 will grow at a constant rate. Following are projections for sales and other items Group Group 1 2 1.35 1.25 Group 3 Group Group 4 5 1.45 15 Group 6 Group Group Group Group Group 7 8 9 10 11 1.4 1.45 1.6 1.65 1.65 LL's beta 1.3 1.5 Risk-free rate 7.20% 7.50% 7.80% 6.30% 6.70% 7.00% 7.30% 7.60% 6,10% 6.50% 6.80% Mit risk premium 4.75%5.20% 5.47% 4.33% 4,60% 4.85% 5.30% 5.57% 4.43% 4.70% 4.95% 4.95% Free cash flow growth rate 6% 5.20% 4% 3.78% 3.69% 5.75% 3.75% 3.53% 3.449 350% fax pre-merger % debt pre merger debt SMA pre-merger debt nd 99 22% 2015 Net Sales Lost of Goods Sold Selling /Administrative Expense Interest Expense Total Net Operating Capital Instient in Net Operating Capital 2016 $60.00 $36.00 $4.80 $5.00 150 $0.00 2017 $90,00 $54.00 $6.10 $6.50 157.5 $7.50 2018 2019 2020 $112.50 $127.50 $139.70 $67.50 $76.50 $83.80 $7.60 $9.20 $11 30 $6.50 $7.00 $8.16 163.5 168 173 $6.00 $4.50 $5.00 $150.00 Hoger's management is new to the merger game, so Zona has been asked to answer some basic questions about mergers as well as to perform the merger analysis. To structure the task, Zona has developed the following questions, which you must answer and then defend to Hager's board a. Briefly describe the difference between a hostile merger and a friendly merger. b. Use the data developed in the table to construct the L division's free cash flows for 2016 through 2020. Why are we identifying interest expense separately when it is not normally included in calculating free cash flows or in a capital budgeting cash flow analysis? Why is investment in net operating capital included when calculating the free cash flow? c Conceptually, what is the appropriate discount rate to apply to the cash flows developed in part b? What is your actual estimate of this discount rate? d. What is the estimated horizon, or continuine, value of the acquisition, that is, what is the estimated value of the L division's cash flows beyond 2020? What is u's value to Hager's shareholders? Suppose another firm were evaluating LL as an acquisition candidate. Would it obtain the same value? Explain. e Assume that Ll has 22 million shares outstanding. These shares are traded relatively infrequently, but the last trade (made several weeks ago) was at a price of $11 per share. Should Hager's make an offer for Lyons Lighting? If so, how much should it offer per share? f. How would the analysis be different if Hager's intended to recapitalize Lt. with 40% debt costing 10% at the end of 4 years? This amounts to $221.6 million in debt as of the end of 2019 What are the major types of divestitures? What motivates firms to divest assets ? Submission instructions: Please submit parts a-g by modifying this word document to contain your solutions, and by submitting an excel file so I may observe the cause of any errors in calculation. All charts must be titled with axes which are appropriately labeled and formatted Submit the two documents as a group. Please abide by policies related to academic integrity