a HW10-21 - Hager's Home Repair Company: 2006 Net Sales...

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Hager's Home Repair Company: 2006 2007 2008 2009 Net Sales $60.00 $90.00 $112.50 Cost of goods sold (60%) 36.00 54.00 67.50 Selling/administrative expense 4.50 6.00 7.50 Interest expense 5.00 6.50 6.50 Total net operating capital 150.00 150.00 157.50 163.50 a. The economically justifiable reasons are (1) tax considerations and (2) synergy. Tax c The not so economically justifiable reasons include (1) risk reduction, (2) control, (3) p b. In a friendly merger, the management of one firm (the acquirer) agrees to buy If the merger is hostile, then it said that the target firm does not want to merge the two c. Since capital structures tend to be dynamic, or often changing over time, then the WA d. The interest tax savings are cash flows that are also available to pay interest, principa e. The free cash flows, tax shields, and horizon value should all be discounted at the unl f. horizon value = [(2008 cash flow)(1+g)]/(WACC-g) = [(20.7)(1.06)]/(0.1084+o.06) = $4 g. current price $11.00 shares outstanding 20000000 current market value $220,000,000.00 expected value $289,400,000.00 value added? $69,400,000.00 The differnce is positive, so the m h. i. Most researchers agree that takeovers increase the wealth of the shareholders of targ j. When accounting for mergers, mergers must use purchase accounting; whereas, the k. The investment banking community is involved with mergers in a number of ways. Sev l. A leveraged buyout is a situation in which a small group of investors (which usually inc s m. The three primary types of divestitures are as follows: (1) the sale of an operating unit n. Holding companies are corporations formed for the sole purpose of owning the stocks
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a HW10-21 - Hager's Home Repair Company: 2006 Net Sales...

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