Name: M&A; Assignment (BSNS 4112) 20 Points. The Deodline is this Thursday (Nov
ID: 2563401 • Letter: N
Question
Name: M&A; Assignment (BSNS 4112) 20 Points. The Deodline is this Thursday (Nov 6). Submit your hardcopy in class. These questions are designed to develop students' ability to make strategic decision. Students will have opportunities to integrate knowledge about corporate-level strategy with analytical skills learned from finance classes. 1-3. Free Cash Flow; WACC; NPV (3 questions) 2013 2014 2015 2016 2017 2018 2019 M&A; Revenue EBIT After Tax Capital Expenditure Dep. & Amortization Net Working Capital 142343 152235 106364 144978 186152 205309 213635 4522 4225 2214 3214 3621 4314 5835 1577 1823 1088 1657 2606 2395 3123 437 575 622 1026 1066 104S 1087 Change 0 4808 6090 1539 903 1689 1758 Free Cash Flow 33827785 4342 1044 1178 Other information Your Investment in Acquisition $2,000 in 2017 Capital Structure $1,200 from Bank; S800 from Investors Interest Rate-5% Cost of Equity-10% Corporate Tax Rates 35%Explanation / Answer
Answer for question no.1:
Free cash flows for year 2018 and 2019 is as follows:
Answer for question no.2:
Given bank rate=5%
Cost of equity=10%
Tax rate=35%
After tax interest rate=5%*(1-.35)
=3.25%.
Given out of 2000 1200 is from bank and 800 is investors, hence % of debt =1200/2000=60%
% of equity=800/2000 =40%.
Weighted average cost of capital is as follows:
Answer for question no.3:
NPV= PResent value of cash inflows - Present value of cash outflow
Present value of cash inflows is as follows:
Present value factor to be used is the weighted average cost of capital i.e., 7.3%
Present value of cash outflows=2000.
Therefore NPV=2960.99 -2000
=960.99
As the NPV is positive the deal should be accepted.
Answer for question no.4:
Given inflation rate=2%.
The given cash flows are $1,000 and this includes amount due to inflation rate also hence this is equal to 102%.
To arrive at the acutal cash flows $1,000 /102%
=980.39.
Particulars 2018 2019 EBIT+After tax(1) 4314 5835 Capital expenditure(2) 2395 3123 Depreciation & amort(3) 1045 1087 Net working capital change(4) 1689 1758 Free cash flow(5)=(1)-(2)+(3)-(4) 1275 2041Related Questions
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