Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259722615
Author: Richard A Brealey, Stewart C Myers, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 13, Problem 11QP
a)
Summary Introduction
To compute: The required
b)
Summary Introduction
To compute: The WACC (weighted average cost of capital) of the company.
c)
Summary Introduction
To compute: The rate of discount for an expansion of firm’s current business.
d)
Summary Introduction
To compute: The required rate of return of company O’s novel venture.
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Ch 26: Assignment - Mergers and Corporate Control
Widget Corp., which is considering the acquisition of Exteter Enterprise Inc., estimates that acquiring Exteter will result in an incremental value for the
firm. The analysts involved in the deal have collected the following information from the projected financial statements of the target company:
Data Collected (in millions of dollars)
Year 1
Year 2
Year 3
EBIT
$13.0
$15.6
$19.5
Interest expense
5.0
5.5
6.0
Debt
35.2
41.6
44.8
Total net operating capital
107.1
109.2
111.3
Exteter Enterprise Inc. is a publicly traded company, and its market-determined pre-merger beta is 1.00. You also have the following information
about the company and the projected statements:
•Exteter currently has a $38.00 million market value of equity and $24.70 million in debt.
The risk-free rate is 3.5%, there is a 5.60% market risk premium, and the Capital Asset Pricing Model produces a pre-merger
required rate of return on equity ISL of 9.10%.
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3. Problem 30-03 (Plan Funding)
Plan Funding
eBook
Consolidated Industries is planning to operate for 10 more years and then cease operations. At that time (in 10 years), it expects to have the following pension benefit obligations:
Year
11-15
16-20
21-25
Annual Total Payment
$3,480,000
2,980,000
26-30
31-35
2,480,000
1,980,000
1,480,000
The current value of the firm's pension fund is $5.6 million. Assume that all cash flows occur at year-end.
a. Consolidated's expected return on pension assets is 11%, and it uses 11% to discount the expected pension benefit payments. What is the present value of the firm's pension fund benefits? Do not round
intermediate calculations. Round your answer to the nearest dollar.
$
b. Is the plan underfunded or overfunded? Do not round intermediate calculations. Round your answer to two decimal places.
Funding ratio=
which means the assets are select than the PV of benefits and the plan is
select
Less or greater
Select
underfunded
overfunded
Plan Funding
Consolidated Industries is planning to operate for 10 more years and then cease operations. At that time (in 10 years), it expects to have the following pension benefit obligations:
Year
11-15
16-20
21-25
Annual Total Payment
$3,500,000
3,000,000
2,500,000
26-30
31-35
2,000,000
1,500,000
The current value of the firm's pension fund is $6.1 million. Assume that all cash flows occur at year-end.
a. Consolidated's expected return on pension assets is 12%, and it uses 12% to discount the expected pension benefit payments. What is the present value of the firm's pension fund
benefits? Do not round intermediate calculations. Round your answer to the nearest dollar.
$
b. Is the plan underfunded or overfunded? Do not round intermediate calculations. Round your answer to two decimal places.
Funding ratio =
which means the assets are -Select- than the PV of benefits and the plan is -Select- ☑.
Less or Greater
Overfunded or Underfunded
Chapter 13 Solutions
Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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