RiverRocks (whose WACC is 11.6%) is considering an acquisition of Raft Adventures (whose WACC is 14.1 %). What is the appropriate discount rate for RiverRocks to use to evaluate the acquisition? Why? The appropriate discount rate for RiverRocks to use to evaluate the acquisition is __ % ? (Round to one decimal place.)

RiverRocks (whose WACC is 11.6%) is considering an acquisition of Raft Adventures (whose WACC is 14.1 %). What is the appropriate discount rate for RiverRocks to use to evaluate the acquisition? Why? The appropriate discount rate for RiverRocks to use to evaluate the acquisition is __ % ? (Round to one decimal place.)

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter5: Business Deductions

Section: Chapter Questions

Problem 49P

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RiverRocks (whose WACC is 11.8%) is considering an acquisition of Raft Adventures (whose WACC is 15.2%). The appropriate discount rate for RiverRocks to use to evaluate the acquisition is ___ %? What is the appropriate discount rate for RiverRocks to use to evaluate the acquisition? Why? A. Raft Adventures' WACC is the most appropriate discount rate to account for the risk of Raft Adventures' cash flows. B. RiverRocks' WACC is the most appropriate discount rate to account for the risk of Raft Adventures' cash flows. C. An average WACC from RiverRocks and Raft Adventures will best account for the risk of Raft Adventures' cash flows. D. The risk-free rate will best account for the risk of Raft Adventures' cash flows since RiverRocks will pay cash for the transaction.
Island, Inc. made a basket purchase involving four assets. Their market values were A: $56,000; B: $42,000 C: $44,000; and D: $58,000. The price Island paid for the four assets was $145,000. To the nearest dollar, what final price will be recorded for asset D? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.) ... O A. $3,000 O B. $31,900 O C. $42,050 O D. $58.000
Moon Company is contemplating the acquisition of Yount, Inc., on January 1, 2015. If Moon acquires Yount, it will pay $730,000 in cash to Yount and acquisition costs of $20,000. The January 1, 2015, balance sheet of Yount, Inc., is anticipated to be as attached:Fair values agree with book values except for the inventory and the depreciable fixed assets, which have fair values of $70,000 and $400,000, respectively. Your projections of the combined operations for 2015 are as follows: Combined sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000 Combined cost of goods sold, including Yount’s beginning inventory, at book value, which will be sold in 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 Other expenses not including depreciation of Yount assets . . . . . . . . . . . . . . . . . . . . . . . . 25,000Depreciation on Yount fixed assets is…
Reck Company is considering the acquisition of Clock Inc. To assess the amount it might be willing to pay, Reck makes the following computations and assumptions.A. Clock, Inc. has identifiable assets with a total fair value of OMR 9,000,000 and liabilities of OMR 6,500,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 30% higher than book value, and land with a fair value 50% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Clock Inc.B. Clock Inc.'s pretax incomes for the years 2018 through 2020 were OMR 580,000, OMR 420,000, and OMR 350,000, respectively. Reck believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future. However, it may need to consider adjustments for the following items included in pretax earnings:Depreciation on Buildings (each year) 380,000Depreciation on Equipment…
Carla Vista Company is considering the acquisition of Kingbird, Inc. To assess the amount it might be willing to pay, Carla Vista makes the following computations and assumptions. A. B. C. Kingbird, Inc. has identifiable assets with a total fair value of $6,016,000 and liabilities of $3,719,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 25% higher than book value, and land with a fair value 50% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Kingbird, Inc. Kingbird, Inc.'s pretax incomes for the years 2020 through 2022 were $472,100, $573,300, and $372,700, respectively. Carla Vista believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future. However, it may need to consider adjustments for the following items included in pretax earnings: Depreciation on Buildings (each year) Depreciation on Equipment…
Zoom owns 50 non-financial assets. It has the ability to purchase those assets from four markets (with same specification) and wishes to measure their fair values for the purpose of the revaluation policy. Four markets currently exist for this type of non-financial asset; Zoom has transacted regularly in three of them. At measurement date, the volume, prices and various costs of each non-financial asset in each respective market are as follows: Market Sale price Past volume with Zoom Total market volume Transaction costs Transport costs East $46,000 1,200 180,000 $500 $400 South $46,000 1,500 150,000 $400 $700 West $45,000 0 200,000 $300 $600 North $45,000 1,700 120,000 $200 $500 Based on the above information, which market is the most advantageous market (if principle market is restricted) and what is the fair value of all 50 non-financial assets under the most advantageous market as at the measurement date assuming that the current use of this type of non-financial…
Sunland Homes Company is considering the acquisition of Oriole, Inc. early in 2025. To assess the amount, it might be willing to pay. Sunland Homes makes the following computations and assumptions. A B Oriole, Inc. has identifiable assets with a total fair value of $15,030,000 and liabilities of $8,815,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 30% higher than book value, and land with a fair value 75% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Oridle, Inc. Oriole, Inc's pretax incomes for the years 2022 through 2024 were $1,200,900, $1,500,800, and $955,000, respectively. Sunland Homes believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future. However, it may need to consider adjustments to the following items included in pretax eamings: Depreciation on buildings (each year) C 962,900…
P Company is considering the acquisition of S Inc. To assess the amount it might be willing to pay, P makes the following computations and assumptions: A. S Inc. has identifiable assets with a total fair value of $8,000,000 and liabilities of $5,300,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 30% higher than book value, and land with a fair value 60% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Barkley, Inc. B. S Inc.'s pretax incomes for the years 2010 through 2012 were $700,000, $900,000, and $550,000, respectively. P believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future. However, it may need to consider adjustments for the following items included in pretax earnings: Depreciation on Buildings (each year) 580,000 Depreciation on Equipment (each year) 30,000 Extraordinary Loss (year 2012)…
Suppose Speedy Delivery pays $62 million to buy Lone Star Overnight. The fair value of Lone Star’s assets is $80 million, and the fair value of its liabilities is $24 million. How much goodwill did Speedy Delivery purchase in its acquisition of Lone Star Overnight?
Tweeden Corporation is contemplating the acquisition of the net assets of Sylvester Corporation in anticipation of expandingits operations. The balance sheet of Sylvester Corporation on December 31, 2015, is as attached:n appraiser for Tweeden determined the fair values of Sylvester’s assets and liabilities to be as shown as in attachment 2The agreed-upon purchase price is $580,000 in cash. Acquisition costs paid in cash total $20,000.Using the above information, do value analysis and prepare the entry on the books of Tweeden Corporation to acquire the net assets of Sylvester Corporation on December 31, 2015.
Suppose Speedy Delivery pays $62 million to buy Lone Star Overnight. The fair valueof Lone Star’s assets is $80 million, and the fair value of its liabilities is $24 million. How muchgoodwill did Speedy Delivery purchase in its acquisition of Lone Star Overnight?a. $42 millionb. $24 millionc. $38 milliond. $6 million
Should Gee Co. proceed with the acquisition of Bea Co.? yes or no? show your solution. The management team of Gee Co. is deciding to acquire Bea Co. an entity that sells a product that compliments its own product. The management of Bea Co. demands a price of P18,000,000 for it to agree with the acquisition by Gee Co. Relevant data gathered for annual operations are as follows: Gee Co. Вea Co. Combined Average Net Income Depreciation Expense 3,500,000 2,500,000 6,500,000 250,000 150,000 350,000 WACC 12% 15% 12.50%