subject
Business, 09.07.2019 01:40 destanie1030

Marston marble corporation is considering a merger with the conroy concrete company. conroy is a publicly traded company, and its beta is 1.30. conroy has been barely profitable, so it has paid an average of only 20% in taxes during the last several years. in addition, it uses little debt; its target ratio is just 25%, with the cost of debt 9%. if the acquisition were made, marston would operate conroy as a separate, wholly owned subsidiary. marston would pay taxes on a consolidated basis, and the tax rate would therefore increase to 35%. marston also would increase the debt capitalization in the conroy subsidiary to wd = 40%, for a total of $22.27 million in debt by the end of year 4, and pay 9.5% on the debt. marston's acquisition department estimates that conroy, if acquired, would generate the following free cash flows and interest expenses (in millions of dollars) in years 1-5:
year free cash flows interest expense
1 $1.30 $1.2
2 1.50 1.7
3 1.75 2.8
4 2.00 2.1
5 2.12 ?
in year 5, conroy's interest expense would be based on its beginning-of-year (that is, the end-of-year-4) debt, and in subsequent years both interest expense and free cash flows are projected to grow at a rate of 6%. these cash flows include all acquisition effects. marston's cost of equity is 10.5%, its beta is 1.0, and its cost of debt is 9.5%. the risk-free rate is 6%, and the market risk premium is 4.5%.
a. what is the value (in dollars) of conroy's unlevered operations, and what is the value of conroy's tax shields under the proposed merger and financing arrangements?
b. what is the dollar value of conroy's operations? if conroy has $10 million in debt outstanding, how much would marston be willing to pay for conroy?

ansver
Answers: 3

Another question on Business

question
Business, 21.06.2019 22:50
Tara incorporates her sole proprietorship, transferring it to newly formed black corporation. the assets transferred have an adjusted basis of $240,000 and a fair market value of $300,000. also transferred was $10,000 in liabilities, $1,000 of which was personal and the balance of $9,000 being business related. in return for these transfers, tara receives all of the stock in black corporation. a. black corporation has a basis of $241,000 in the property. b. black corporation has a basis of $240,000 in the property. c. tara’s basis in the black corporation stock is $241,000. d. tara’s basis in the black corporation stock is $249,000. e. none of the above.
Answers: 1
question
Business, 22.06.2019 05:50
Cosmetic profits. sally is the executive vice president of big name cosmetics company. through important and material, nonpublic information, she learns that the company is soon going to purchase a smaller chain of stores. it is expected that stock in big name cosmetics will rise dramatically at that point. sally immediately buys a number of shares of her company's stock. she also tells her friend alice about the expected purchase of stores. alice wanted to purchase stock in the company but lacked the funds with which to do so. although she did not have the funds in bank a, alice decided to draw a check on bank a and deposit the check in bank b and then proceed to write a check on bank b to cover the purchase of the stock. she hoped that she would have sufficient funds to deposit before the check was presented for payment. of which of the following offenses, if any, is alice guilty of by buying stock?
Answers: 2
question
Business, 22.06.2019 16:20
The following information relates to the pina company. date ending inventory price (end-of-year prices) index december 31, 2013 $73,700 100 december 31, 2014 100,092 114 december 31, 2015 107,856 126 december 31, 2016 123,009 131 december 31, 2017 113,288 136 use the dollar-value lifo method to compute the ending inventory for pina company for 2013 through 2017.
Answers: 1
question
Business, 22.06.2019 18:30
Afarmer is an example of what kind of producer?
Answers: 2
You know the right answer?
Marston marble corporation is considering a merger with the conroy concrete company. conroy is a pub...
Questions