Transcorn, a terge conglomerate, is evaluating the ponsible aciquisitich of the Chie Getulany. a mintions of dodiars) The acquisition, if made, would occur on January 4, 2012. All cash flows above are assumed to occur at the end of the year. Chip currently has a market value capital structure of 10 percent debt with $30 million of debt costing 8%. TransCorp would increase the debt to 50 percent, with an expected rate of 9.5% by the end of four years, if the acquisition were made. Chip, If independent. pays taxes at 30 percent, but its income would be taxed at 40 percent if consolidated. Chip's current market-determined beta is 1.80. The cash flows above detail the free cash flows and the interest on all of the debt associated with he acquisition, as well as the full taxes paid by TransCorp on the Chip income stream. The last The acquisition, if made, would occur on January 4. 2012. All cash flows above are aseumed to occur at the end of the year. Chip currently has a market value capltal structure of 10 percent debt. with $30 million of debt costing 8%. Transcorp would increase the debt to 50 percent, with an expected rate of 9.5% by the end of four years, if the acquisition were made. Chip. if incependent, pays taxes at 30 percent, but its income would be taxed at 40 percont if consolidated. Chip's current market-determined beta is 1.80. The cash flows above detail the free cash flows and the interest on all of the debt associated with the acquisition, as well as the full taxes paid by TransCorp on the Chip income stream, The last year of projections are at Chip's long term capital structure. Required investment in net operating capital are also shown. TransCorp oxpects Chip's free cash flows and tax shields to grow at a 4% rate after the horizon. The risk-free rate is 6 percent and the market risk premium is 5 percent. Use the compressed adjusted present value approach to answer the following questions What is the unlevered cost of equity? What in the urlevered cost of equity? 14.30% 15.00% 11.5% 12.40% 13.98% Question 1.5 (2 polrit) Chip has 5 milion thares outstandine. Chip's curtent market price is 5 s ion Whut is the makimum price per share that Transcorp should offer? 1) $65.00 2) $48.01 3) $75.00 4) $69.00 5) $51.00 Which of the following price per share should TransCorn offer? $51 $62 $75 $69 $72 Transcorn, a terge conglomerate, is evaluating the ponsible aciquisitich of the Chie Getulany. a mintions of dodiars) The acquisition, if made, would occur on January 4, 2012. All cash flows above are assumed to occur at the end of the year. Chip currently has a market value capital structure of 10 percent debt with $30 million of debt costing 8%. TransCorp would increase the debt to 50 percent, with an expected rate of 9.5% by the end of four years, if the acquisition were made. Chip, If independent. pays taxes at 30 percent, but its income would be taxed at 40 percent if consolidated. Chip's current market-determined beta is 1.80. The cash flows above detail the free cash flows and the interest on all of the debt associated with he acquisition, as well as the full taxes paid by TransCorp on the Chip income stream. The last The acquisition, if made, would occur on January 4. 2012. All cash flows above are aseumed to occur at the end of the year. Chip currently has a market value capltal structure of 10 percent debt. with $30 million of debt costing 8%. Transcorp would increase the debt to 50 percent, with an expected rate of 9.5% by the end of four years, if the acquisition were made. Chip. if incependent, pays taxes at 30 percent, but its income would be taxed at 40 percont if consolidated. Chip's current market-determined beta is 1.80. The cash flows above detail the free cash flows and the interest on all of the debt associated with the acquisition, as well as the full taxes paid by TransCorp on the Chip income stream, The last year of projections are at Chip's long term capital structure. Required investment in net operating capital are also shown. TransCorp oxpects Chip's free cash flows and tax shields to grow at a 4% rate after the horizon. The risk-free rate is 6 percent and the market risk premium is 5 percent. Use the compressed adjusted present value approach to answer the following questions What is the unlevered cost of equity? What in the urlevered cost of equity? 14.30% 15.00% 11.5% 12.40% 13.98% Question 1.5 (2 polrit) Chip has 5 milion thares outstandine. Chip's curtent market price is 5 s ion Whut is the makimum price per share that Transcorp should offer? 1) $65.00 2) $48.01 3) $75.00 4) $69.00 5) $51.00 Which of the following price per share should TransCorn offer? $51 $62 $75 $69 $72