Question

Your firm wants to buy AZ Corporation. Your assistant has made the following free cash flow...

Your firm wants to buy AZ Corporation. Your assistant has made the following free cash flow forecast (in millions): Year 1 2 3 FCF $100 $105 $111 After year 3, the firm will produce $111 million per year in perpetuity. AZ has $50 million in long-term debt and there are one million shares outstanding. AZ’s WACC is 9%. 1. What price per share should you offer AZ’s shareholders, assuming no synergies? 2. Now suppose the merged firms will save $10 million per year in costs for the next five years. What is maximum price per share you can offer without destroying value?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You are evaluating a firm with projected free cash flows given below. You expect that cash...
You are evaluating a firm with projected free cash flows given below. You expect that cash flows will grow by 4% per year after the forecast period. The appropriate discount rate is 12%. The firm has a net income of $34 million. Debt of $20 million. The firm has 10 million shares outstanding. You have found a comparable firm with a P/E multiple of 11.5 times. What is the price per share of the firm using FCF discounted by weighted...
The firm Hill is planning to acquire Dale, another firm in the same industry. Relevant financial...
The firm Hill is planning to acquire Dale, another firm in the same industry. Relevant financial information for the two firms is shown below. Hill Date Price Per share, $ 4.50 1.90 Number of shares 28,000,000 10,500,000 Dividend payout ratio 0.65 0.20 Both firms are financed entirely by equity. The acquisition will result in expected cost savings for the merged (post-acquisition) firm with a total present value of $38 million. (a) Assume for this part of the question that Hill’s...
Mastrade firm has free cash flow of 3,500,000 USD. When the firm was unlevered it had...
Mastrade firm has free cash flow of 3,500,000 USD. When the firm was unlevered it had a cost of equity of 9%. Then it went for permanent leverage by borrowing 500,000 USD at 8% interest rate. Corporate tax rate 40%. What is the WACC of the company? If FCF increase to 4 million next year, what will be the value of Mastrade firm?
1. 123 Warehousing is expected to generate a free cash flow (FCF) of $5,730.00 million this...
1. 123 Warehousing is expected to generate a free cash flow (FCF) of $5,730.00 million this year (FCF₁ = $5,730.00 million), and the FCF is expected to grow at a rate of 25.00% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 3.90% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If 123 Warehousing’s weighted average cost of capital...
Carmax Inc. has generates annual free cash flow of $2,096 million. The firm current has $1,823...
Carmax Inc. has generates annual free cash flow of $2,096 million. The firm current has $1,823 million in long and short-term debt, $259 million in marketable securities, and the current market value of preferred stock is $767 million. Carmax expects their cash flow to grow 25% and 10% during the next two years. The fi rm then anticipates a constant FCF growth rate of 9%. If the fi rm has a WACC of 18% and 364 million shares outstanding, what...
Heavy Metal Corporation is expected to generate the following free cash flows over the next five...
Heavy Metal Corporation is expected to generate the following free cash flows over the next five years: Year 1 2 3 4 5 FCF ($ millions) 53 68 78 75 85 After then, the free cash flows are expected to grow at the industry average of 4% per year. Using the discounted free cash flow model and a weighted average cost of capital of 14%: A. Estimate the geometric mean growth rate (also known as CAGR=Compound Average Growth Rate) of...
Free Cash Flow Valuation Dozier Corporation is a fast-growing supplier of office products. Analysts project the...
Free Cash Flow Valuation Dozier Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 5% rate. Dozier's weighted average cost of capital is WACC = 17%. Year 123 Free cash flow ($ millions)-$20$30$40 What is Dozier's horizon value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Enter your answers...
Extensive Enterprise Inc. is expected to generate a free cash flow (FCF) of $2,450.00 million this...
Extensive Enterprise Inc. is expected to generate a free cash flow (FCF) of $2,450.00 million this year (FCF₁ = $2,450.00 million), and the FCF is expected to grow at a rate of 21.40% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 2.82% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If Extensive Enterprise Inc.’s weighted average cost of...
8–18 Free Cash Flow Valuation Dozier Corporation is a fast-growing supplier of office products. Analysts project...
8–18 Free Cash Flow Valuation Dozier Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 7% rate. Dozier’s weighted average cost of capital is WACC 5 13%. Year 1 2 3 Free cash flow ($ millions) 2$20 $30 $40 a. What is Dozier’s horizon value? (Hint: Find the value of all free cash flows beyond Year 3 discounted...
Free Cash Flow Valuation Dozier Corporation is a fast-growing supplier of office products. Analysts project the...
Free Cash Flow Valuation Dozier Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 5% rate. Dozier's weighted average cost of capital is WACC = 15%. Year 1 2 3 Free cash flow ($ millions) -$20 $30 $40 What is Dozier's horizon value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT