Ham, Incorporated, wants to expand its party stores into the South. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held A's Supply. Ham currently has debt outstanding with a market value of $120 million and a YTM of 6.8 percent. The company's market capitalization is $260 million and the required return on equity is 15 percent. A's currently has debt outstanding with a market value of $25.5 million. The EBIT for A's next year is projected to be $17 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. A's has 2.15 million shares outstanding and the tax rate for both companies is 25 percent.

Ham, Incorporated, wants to expand its party stores into the South. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held A's Supply. Ham currently has debt outstanding with a market value of $120 million and a YTM of 6.8 percent. The company's market capitalization is $260 million and the required return on equity is 15 percent. A's currently has debt outstanding with a market value of $25.5 million. The EBIT for A's next year is projected to be $17 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. A's has 2.15 million shares outstanding and the tax rate for both companies is 25 percent.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 20P

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