Q1. A company is contemplating acquisition of Target firm ABC ltd with following Financials.WACC InputsWeight of DebtWeight of EquityCost of DebtRisk-Free RateBetaMarket Risk PremiumTax RateFree Cash Flow data (In inr millions)EBIT31%69%3.50%5.00%1.157%30%7,0007504507508%Steady State Growth rate2%Determine the value of target firm as per DCF-Discounted cash flow analysis? (10)Depreciation & AmortizationCapital ExpenditureChange in Working CapitalGrowth rate 8% in forecasted five year period

Free cash flow is cash flow available from business that is obtained after adding depreciation to…

Q1. A company is contemplating acquisition of Target firm ABC ltd with following Financial WACC Inputs 40 2 Weight of Debt 31% 69% Weight of Equity Cost of Debt 3.50% Risk-Free Rate 5.00% Beta Market Risk Premium Tax Rate 1.15 7% 30%

Q1. A company is contemplating acquisition of Target firm ABC ltd with following Financial WACC Inputs 40 2 Weight of Debt 31% 69% Weight of Equity Cost of Debt 3.50% Risk-Free Rate 5.00% Beta Market Risk Premium Tax Rate 1.15 7% 30%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Q1. A company is contemplating acquisition of Target firm ABC ltd with following Financials.
WACC Inputs
Weight of Debt
Weight of Equity
Cost of Debt
Risk-Free Rate
Beta
Market Risk Premium
Tax Rate
Free Cash Flow data (In inr millions)
EBIT
31%
69%
3.50%
5.00%
1.15
7%
30%
7,000
750
450
750
8%
Steady State Growth rate
2%
Determine the value of target firm as per DCF-Discounted cash flow analysis? (10)
Depreciation & Amortization
Capital Expenditure
Change in Working Capital
Growth rate 8% in forecasted five year period

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Evans Technology has the following capital structure. Debt Common equity 35% 65 The aftertax cost of debt is 7.50 percent, and the cost of common equity (in the form of retained earnings) is 14.50 percent. a. What is the firm's weighted average cost of capital? Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Common equity Weighted average cost of capital Weighted Cost % % An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 8.50 percent, and the cost of common equity (in the form of retained earnings) is 16.50 percent. Debt Common equity Weighted average cost of capital b. Recalculate the firm's weighted average cost of capital. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal…
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Evans Technology has the following capital structure. Debt Common equity The aftertax cost of debt is 8.50 percent, and the cost of common equity (in the form of retained earnings) is 15.50 percent. a. What is the firm's weighted average cost of capital? Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. 48% 60 Debt Common equity Weighted average cost of capital Weighted Cost % % An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 9.50 percent, and the cost of common equity (in the form of retained earnings) is 17.50 percent. b. Recalculate the firm's weighted average cost of canital

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