Question
Pre-acquisition data for Global, INC which is acquiring Regional, INC a target in a merger transaction are given below. Global, INC Regional, INC MarketCapitalization(millions)
Pre-acquisition data for Global, INC which is acquiring Regional, INC a target in a merger transaction are given below.
Global, INC | Regional, INC | |
Market Capitalization (millions) | 4000 | 500 |
Beta | 0.9 | 1.3 |
Total Debt | 1200 | 250 |
In addition, the cost of borrowing for the combined firm is expected to be 200 basis points above treasury. The combined firm is expected to maintain a target debt-to-equity ratio of 30%. The treasury bond rate is 3% and market risk premium is 5.5%. Assuming a tax rate of 20% for all firms, calculate the weighted average cost of capital for the combined firm.
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Step by Step Solution
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The WACC is the average rate of return required by all of the firms investors It is calculated as th...
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
