Fundamentals of Financial Management (MindTap Course List)
14th Edition
ISBN: 9781285867977
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Question
Chapter 21, Problem 4P
a.
Summary Introduction
To Determine: The discount rate that should be used to estimate the cash flows.
Introduction: A merger is the mix of two organizations into one by either shutting the old entities into one new entity or by one organization engrossing the other. In other terms, at least two organizations are united into one organization to form a merger.
b.
Summary Introduction
To Determine: The dollar value to Corporation V to Corporation A.
c.
Summary Introduction
To Determine: The maximum price per share that Corporation A should offer for Corporation V and the outcomes of Corporation A's stock price if the tender offer is accepted.
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DoPharm is evaluating a takeover of Phaneuf Accelerator Inc. by using the FCF and FCFE valuation approaches. DoPharm has collected the following information for the current year:• Phaneuf has sales of $1,000 million with 40% operating margin, depreciation of $90 million, capital expenditures of $170 million, and an increase in working capital of $40 million.• Interest expenses are $50 million. The current market value of Phaneuf’s outstanding debt is $1,500 million. The company has retired the existing bonds for $10 million.• FCF and FCFE are expected to grow at 10% for the next five years and 6% after that.• The tax rate is 30%.• Phaneuf financed with 40% debt and 60% equity. Its before-tax cost of debt is 9%, and its cost of equity is 13%. The number of shares outstanding is 100 million.
Question: Estimate the current year’s free cash flow of Phaneuf in millions.
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Chapter 21 Solutions
Fundamentals of Financial Management (MindTap Course List)
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