C09final-summer2008-solution.doc

C09final-summer2008-solution.doc - ANSWER 1: a. MV of...

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Unformatted text preview: ANSWER 1: a. MV of NoDebt assets before the buyout = $350,000/0.08 = $4,375,000 3 Price = $4,375,000/100,000 = $43.75 per share b. 1. NPV buyout = -$925,000 + 117,500/0.10 = -$925,000 + 1,175,000 = $250,000 Price after announcement = (4,375,000+250,000)/100,000 = $46.25 9 2. NoDebt needs to issue $925,000/46.25 = 20,000 shares 3. MV of NoDebt Equity after acquisition = $4,375,000 = 1,175,000 = $5,550,000 4. Expected Return to NoDebt Equity holders = ($350,000 + 117,500)/5,550,000 = 0.084234 = 8.4234% 5. r WACC = 0.084234 = 8.4234% c. 1. Priceafter announcement = $46.25 per share 8 2. MV of NoDebt Equity after acquisition = $4,375,000 + 250,000 = $4,625,000 3. Expected return after purchase finalized = ($350,000+117,500+925,000(0.07))/4,625,000 = 0.08708 = 8.708% 4. ) 08708 . ( 000 , 550 , 5 000 , 625 , 4 ) 07 . ( 000 , 550 , 5 000 , 925 + = + = s B wacc r V S r V B r =0.011667 + 0.072568 = 0.084234 ANSWER 2: a....
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This note was uploaded on 04/19/2010 for the course MGT MGTC09 taught by Professor Syedahmed during the Spring '10 term at University of Toronto.

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C09final-summer2008-solution.doc - ANSWER 1: a. MV of...

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