Symphony Ltd is contemplating the acquisition of Ganga Iron ore. Iron ore is an important raw material input in steel production. Such an acquisition is likely to assure the supply of iron ore by taking care of 65% of the iron ore needs of Symphony Ltd. Ganga Iron ore is likely to grow at a rapid speed of 8% pa for eight years after acquisition after which the growth rate would stabilize at 5% pa. Ganga Iron ore is an unleveraged firm with 25.75 crores outstanding equity shares and a beta of 2.65.

Acquisition of Ganga Iron ore will increase the debt raising capacity of Symphony Ltd to 15% of its value. The current cost of debt is 9.75% and the risk-free rate is 5.75% with a risk premium of 10.25% of Triveni Ltd . with a corporate tax of 38.5% find out the value of Ganga Iron ore and comment on the acquisition.

Earnings Projection of Ganga Iron ore for the next 4 years are:

Particulars

2019

2020

2021

2022

Profit before depreciation interest and tax

204.25

238.97

279.60

327.13

Depreciation

71.49

89.62

106.25

147.21

PBI

132.76

149.36

173.35

179.92

PAT

81.65

91.86

106.61

110.65

No of outstanding shares

25.75

25.75

25.75

25.75

Capital expenditure

100.8

124.27

178.94

212.64

Changes in working capital

30.64

35.85

41.94

49.07