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Gekko Properties is considering purchasing Teldar Properties.

Gekko Properties is considering purchasing Teldar Properties. Gekko's analysts project that the merger will result in incremental after-tax net cash flows of $2 million, $4 million, $5 million, and $10 million over the next four years. The terminal value of the firm's operations, as of Year 4, is expected to be $107 million. Assume all cash flows occur at the end of the year. The acquisition would be made immediately, if it is undertaken. Teldar's post-merger beta is estimated to be 1.7, and its post-merger tax rate would be 35%. The risk-free rate is 6%, and the market risk premium is 5.5%. What is the value of Teldar to Gekko Properties?

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to get NPV of telder to gekko; u need to find the discount rate k at which to discount... View the full answer

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Start: 100 mil 100 mil * (1-.35) =... View the full answer

Start: 100 mil 100 mil * (1-.35) =... View the full answer

1 comment
  • .$68,157,980
    • RayJack
    • Jul 19, 2016 at 8:48pm

Start: 100 mil 100 mil * (1-.35) =... View the full answer

to get NPV of telder to gekko; u need to find the discount rate k at which to discount the... View the full answer

Start: 100 mil 100 mil * (1-.35) =... View the full answer

 to get NPV of telder to gekko; u need to find the discount rate kat which to discount... View the full answer

Solution... View the full answer

9622558.xlsx

Here is a detailed explanation... View the full answer

Gekko.xlsx

Compute cost of capital using CAPM
Risk free rate
6%
Beta
1.7
risk premium
5.50%
Cost of capital
15.35% Year PV Cash Flow
1
$2,000,000
2
$4,000,000
3
$5,000,000
4 $117,000,000.00
$74,084,760.38...

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