I-MERGER & ACQUISITION

II-NPV , Standard Deviation

III-DEBT,EQUITY

Benson Oil is being considered for acquisition by Dodd Oil. The combination, Dodd believes, would increase its cash flows by $20000 for each of the next 5 years and by $60000 for each of the following 5 years [total 10 years]. Benson has high financial leverage, and Dodd can expect its cost of capital to increase from 12% to 15% if the merger is undertaken. The cash price of Benson is $125000. a) Would you recommend the merger? b) Would you recommend the merger if Dodd could use the $125000 to purchase equipment that will return cash inflows of $40000 per year for each of the next 10 years? c) If the cost of capital did not change with the merger, would your decision in part (b) be different? Explain.A company is considering a proposal to purchase a new machine. The machine has an initial cost of $50,000. The capital budgeting department has developed the following discrete probability distribution for cash flows (CFAT) generated by the project during its useful life of 3 years: Year1 Year2 CFAT Year3 Prob. CFAT $15,000 Prob. CFAT 0.20 $ 20,000 Prob. 20,000 0.50 0.40 $25,000 0.10 23,000 25,000 0.10 30,000 0.30 25,000 0.30 0.20 30.000 0.10 35.000 28,000 0.30 0.20 50,000 0.30 Assuming that the probability distributions of cash flows for future periods are independent, and the firm's expected values. cost of capital is 10 percent, determine the expected net present value and standard deviation about theAssume a company has earnings available 10 common stockholders $10 million. Its target debt to equity ratio is l:l. Domino the amount of dividends paid and dividend payout ratio by using residual meaty of dividends when new investment opportunities on: in the Sim range of: a) $20 million 3) $15 million 0} $10 million :1) $05 million a) $04 million f) $26113