CCI_supplement - 1 A simplified CCI Lets ignore (for now)...

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Unformatted text preview: 1 A simplified CCI Lets ignore (for now) Tax deductibility of interest Transaction cost of the equity issue How many shares issued now? n = $50MM/17.75 = 2.82 MM Assuming capital markets are efficient, what does CCIs market-value balance sheet look like before the acquisition? Assets Financing 79.9 MM D = 0 E = 17.75*4.5MM = 79.9 MM 2 Leverage and Value What does CCIs market-value balance sheet look like after the acquisition If financed with debt? If financed with equity? Are the equity holders better off? P(debt) = 79.9/(4.5) = 17.75 P(equity) = 129.9/(4.5+2.82) = 17.75 Assets Financing 79.9 + 50 = 129.9 MM D = 50 E = 129.9 - 50 = 79.9 MM Assets Financing 79.9 + 50 = 129.9 MM D = 0 E = 129.9 - 0 = 129.9 MM 3 Leverage and EPS EBIT chart from case Revised EBIT chart (ignoring taxes and transaction costs) 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 2 . 5 5 7 . 5 1 1 2 . 5 1 5 1 7 . 5 2 2 2 . 5 2 5 2 7 . 5 3 3 2 . 5 3 5 3 7 . 5 4 EBIT EPS...
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CCI_supplement - 1 A simplified CCI Lets ignore (for now)...

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