Question

Marcus owns a laundromat and Nancy owns a nearby video arcade. Marcus thinks that there are...

Marcus owns a laundromat and Nancy owns a nearby video arcade. Marcus thinks that there are many potential synergies between his business and Nancy’s business. If he buys her out and moves her video arcade into the spare room in the back of his laundromat, he will be able to sell some of the surplus change machines for $10,000 after taxes, and not having to pay rent on two spaces will increase the video arcade’s EBIT by $24,000 per year for the foreseeable future. Finally, he will be able to partially finance this purchase using a small business loan on very favorable terms. While he normally pays an interest rate of 5.5% when borrowing for his business, the city government is willing to loan him $100,000 for 5 years at 4% to help him make the purchase. Nancy’s cost of equity is 18%, and the tax rate is 40%.

3A. What is the NPV of the subsidized business loan to Marcus?

3B. What is the NPV of all the synergies of this merger?

3C. If Nancy’s video arcade has a market value of $400,000, what is the highest price Marcus could justify offering her for her business?

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Marcus owns a laundromat and Nancy owns a nearby video arcade. Marcus thinks that there are...
Marcus owns a laundromat and Nancy owns a nearby video arcade. Marcus thinks that there are many potential synergies between his business and Nancy’s business. If he buys her out and moves her video arcade into the spare room in the back of his laundromat, he will be able to sell some of the surplus change machines for $10,000 after taxes, and not having to pay rent on two spaces will increase the video arcade’s EBIT by $24,000 per year...
Marcus owns a laundromat and Nancy owns a nearby video arcade. Marcus thinks that there are...
Marcus owns a laundromat and Nancy owns a nearby video arcade. Marcus thinks that there are many potential synergies between his business and Nancy’s business. If he buys her out and moves her video arcade into the spare room in the back of his laundromat, he will be able to sell some of the surplus change machines for $10,000 after taxes, and not having to pay rent on two spaces will increase the video arcade’s EBIT by $24,000 per year...
Bryan followed in his father’s footsteps and entered into the carpet business. He owns and operates...
Bryan followed in his father’s footsteps and entered into the carpet business. He owns and operates I Do Carpet (IDC). Bryan prefers to install carpet only, but in order to earn additional revenue, he also cleans carpets and sells carpet-cleaning supplies. A. IDC contracted with a homebuilder in December of last year to install carpet in 10 new homes being built. The contract price of $87,500 includes $53,000 for materials (carpet). The remaining $34,500 is for IDC’s service of installing...
Read this case study and then answer the questions that follow. (The paragraphs are number 1...
Read this case study and then answer the questions that follow. (The paragraphs are number 1 to 13 for your convenience). 1. Mr Michael Maguire lives in Wombat, in the central west of New South Wales. Michael owns a 3000 acre farm in Young, and the main crop he grows is cherries. He has decided he needs to acquire a better and more efficient spraying machine. 2. Some specialist spraying machines are available in Toronto, Canada at the firm Maple...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT