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Tim Gillespie Week 8

# Tim Gillespie Week 8 - Tim Gillespie Chapter 18 Problem 19...

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Tim Gillespie Chapter 18 Problem 19 \$3.00 10% g = 5% A. Plan A 3.57 10% g = 5% C. \$71.40 B Plan B 3.18 10% g = 6% \$79.50 D 0 = K e = D 1 = K e = P 0 = Plan B would create the higher value for the stock price today. The reason for this is the growth rate is higher. The dividend at the end of the first year might be a little lower, but a 6% growth rate raises the price more D 1 = K e = P 0 =

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Tim Gillespie Chapter 20 Problem 1 \$3,000,000.00 Cash Purchase Price -\$700,000.00 tax loss carryover from Kent 30% Clark Tax Rate \$420,000.00 Cash Flow from Kent 20.00 Years Cash Flow 13% Cost of Capital The Clark Corporation Cash Outflow: Purchase Price \$3,000,000.00 Less Tax Shield Benefit (-700,000 * 30%) -\$210,000.00 Net Cash Outflow \$2,790,000.00 Cash Inflows: Total Present Value of Inflows (420,000 * 7.025) \$2,950,500.00 Cash Inflows \$2,950,500.00 Cash Outflows \$2,790,000.00 Net Present Value \$160,500.00 According to the cash flow statement on the left, the merger should take place. The present value of a positive \$160,500 means that by Clark Corporation purchasing Kent Enterprises, it would increase the cash flow quite a bit.
Tim Gillespie Chapter 20 Problem 6
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Tim Gillespie Week 8 - Tim Gillespie Chapter 18 Problem 19...

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