a)
To determine: The company V’s pre-acquisition levered
a)
Explanation of Solution
The computation of company V’s pre-acquisition levered cost of equity and unlevered cost of equity is as follows:
Current b = 1.4; rRF = 5%; RPM = 6%; current wd = 30%; T = 40%; rd = 8%,
Hence, the levered cost of equity and unlevered cost of equity is 13.4% and 11.78% respectively.
b)
To determine: The unlevered value of operations.
b)
Explanation of Solution
The computation of unlevered value of operation is as follows:
Hence, the unlevered value of operation is $44.69.
c)
To determine: The value of tax shield.
c)
Explanation of Solution
The computation of value of tax shield is as follows:
Hence the value of tax shield is $7.67million.
d)
To determine: The total intrinsic value of operations, intrinsic value of company V’s equity to company H and company V’s intrinsic stock price per share.
d)
Explanation of Solution
The computation of total value of operation is as follows:
Hence the total value of operation is $52.36 million.
The computation of equity value to acquirer is as follows:
Hence, the equity value of company V to company H is $41.54million.
The computation of intrinsic stock price per share is as follows:
Hence, the intrinsic stock price per share is $41.54per share.
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Chapter 26 Solutions
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- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning