Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You have been asked to value two companies independently and to determine if the two companies merge, what is the increase or decrease in valuation

You have been asked to value two companies independently and to determine if the two companies merge, what is the increase or decrease in valuation after the merger. The facts are:

Company A 2019 2020 2021 2022 2023

(Historical)

Operating Income $18 $20 $21 $21.63 $22.28

Tax Rate 21.00% 21.00% 21.00% 21.63% 22.28%

Operating Assets $12 $14 $15 $16 $16

Operating Liabilities $6 $6 $8 $10 $11

WACC 12% 12% 12% 11% 11%

Terminal Growth Rate 3%

NonOperating Liabilities NONE

Company B 2019 2020 2021 2022 2023

(Historical)

Operating Income $26 $30 $33 $40 $41

Tax Rate 21.00% 21.00% 21.00% 21.00% 21.00%

Operating Assets $15 $18 $16 $19 $21

WACC 12% 12% 12% 11% 11%

Terminal Growth Rate 3%

NonOperating Liabilities <$12>

Merged Company 2019 2020 2021 2022 2023

(Historical)

Estimated Expenses

saved by merging $3 $4 $5 $5

Tax Rate 21% 21% 21% 21% 21%

WACC 12% 12% 12% 11% 11%

Terminal Growth Rate 3%

Non-Operating Liabilities <$12>

Answer these questions

a) what is the valuation of Company A?

b) what is the valuation of Company B?

C) what is the valuation of the merged Company?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting What the Numbers Mean

Authors: David H. Marshall, Wayne W. McManus, Daniel F. Viele,

9th Edition

978-0-07-76261, 0-07-762611-7, 9780078025297, 978-0073527062

More Books

Students also viewed these Accounting questions

Question

1. Information that is currently accessible (recognition).

Answered: 1 week ago