ch25boc-model - A 1 2 3 B C D E F G Chapter 25. Mergers,...

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Chapter 25. Mergers, LBOs, Divestitures, and Holding Companies Input Data (totals in thousands) Changing Data for Scenario Analysis: Target's Data: Current Scenario: Base Good Base Bad Growth 2004 20% 25% 20% 5% Growth 2005 20% 20% 20% 5% Growth 2006 15% 15% 15% 5% Growth 2007 10% 10% 10% 5% Growth 2008 8% 10% 8% 5% Long-run growth rate: 6% 7% 6% 5% All operating Costs Except Depr'n / Sales 60% 55% 60% 65% Depreciation / Sales 8% 7% 8% 10% Interest / Sales 5% 4% 5% 6% Required Investment / Sales 15% 13% 15% 17% Tax rate: 40% 40% 40% 40% 7.0% 6% 7.0% 8% Target's leveraged beta 1.2 1.15 1.20 1.50 Market Risk Premium = MRP 5% 4% 5% 6% 9% 8% 9% 10% Prior Year Sales $83.333 The Scenario Analysis tool substitutes da Pre-announcment market value of stock, S = $140.0 various cases into Cells D7:D22 and then Pre-announcement market value of debt, D = $60.0 results with that set of data. Also, the too 30.0% Scenario Summary and displays it on a se 70.0% worksheet. See the BOC model for Chapt on Scenario Analysis. Calculate the Relevant Discount Rates: First, we use the data provided to calculate Target's levered pre-merger cost of equity based on the CAPM: = + Beta = 7.0% + 1.2 This spreadsheet illustrates a valuation for a proposed merger. The Excel functions used here were explain models, so to avoid clutter detailed explanations are generally omitted. In particular, note that instructions o Scenario Analysis Tool were provided in the BOC models for Chapters 8 and 10. Note also that we do not provide forecasted balance sheets because that would involve additional detail. In analysis, all the financial statements would be forecasted, along with ratios, using the procedures discussed in Data Used for Displayed Scenario: Risk free rate = r RF Target's cost of debt = r d Market value weight for debt, w d = Market value weight for stock, w s = We now use the data to value the target firm, for each of the three scenarios. That involves solving this basic Chapter 25. Here FCF is free cash flow, TS is the interest tax shield, HV is the value in the horizon year of al and r sU is the target's unleveraged cost of equity. We explain how the equation is solved below. From Equation 15-12 in Chapter 15, we know that r
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ch25boc-model - A 1 2 3 B C D E F G Chapter 25. Mergers,...

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