Explore BrainMass

# Annual Cash Flow Discount Rate Estimated Values

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

See the attached file.

1.) If Company A is acquiring Company B, how do I complete the following table?

Table 1 Net Annual Cash Flow Discount Rate Estimated Value
Company A \$42,274 0.09
Company B \$13,658 0.12
"Before A+B"
Benefits -------------------------- ---------------------- ---------------------
Less Currency Risk \$1,850 0.05
Cost Reduction \$2,040 0.12
Long-term growth \$4,320 0.18
"After AB" ---------------------- ----------------------- ---------------------

2.) Firm X is considering the acquisition of firm Y for cash. Given the information supplied in the table below:
a.) What price should firm x pay for firm Y if it gives 1/3 of the synergistic benefits to firm Y shareholders?
b.) Complete the table given the price determined in (a)

Table 2 Firm X Firm Y Synergy XY
Beginning Value \$470,000 \$114,000 \$78,000
Shares Outstanding 'before' 34,800 12,000 ------------------
Price paid for Y --------------- -----------------
Value of XY after merger --------------- ------------------ -----------------
Shares outstanding "After" 0 0 ------------------- 34,800
PPS for XY ----------------- ------------------ -----------------

3.) Firm X is considering the acquisition of firm Y for shares. Using the information supplied in table 2 (above):

a.) Complete table 3 using the # of new shares determined in (a)
b.) How many new shares should be issued to achieve a target price for XY stock of \$15 per share?

Table 3 Firm X Firm Y Synergy XY
Beginning value
Shares outstanding "before" ----------------- -------------------
PPS before
------------------ -------------------
New shares to Y shareholders ------------------- ---------------- --------------------
Total shares "After" ----------------
New PPS for XY ------------------ ------------------ ------------------ \$15.00

4. Using data from finance.yahoo.com 5year (5y) charts, how do I complete the following chart?

Last closing price end of year S&P 500 Year by year change Apollo Group Year by year change
2002 -------------- -------------
2003
2004
2005
2006

5. If I use the data in the chart above, how do calculate the beta for Apollo Group and input year to year changes in decimal format (not %)

6. With the following data for ABC Inc., a.) How do I calculate the cost of debt (Rd)? b) The cost of equity (Rr)? And c.) The weighted average cost of capital (WACC)?

Rb= 9.7%
Rrf= 4.64%
Debt=\$6,540,000
Beta= 2.4
Tc+ 15%
Rm= 9%
Equity= \$3,210,000

7. How do I complete the following table? Using the equivalent annual cost method, which project is a better investment?
Annual costs
Item Initial coast 1 2 3 PV at 7.0% Equivalent annual annuity
Project A \$18,000 \$6,000 \$6,000 \$6,000
Project B \$ 12,000 \$9,000 \$9,000 ----------

8. If Company M makes High tech scanners and sells them for \$90,000 each with a gross profit margin of 40% and it has a fixed cost of \$4,500,000 per month.

a.) What's the contribution margin of each scanner sold?
b.) How many scanner units does Company M sell each month to break even?

#### Solution Preview

Attached are the Word files with answers and explanations and Excel file that shows the computations themselves.

1.) If Company A is acquiring Company B, how do I complete the following table?

Table 1 Net Annual Cash Flow Discount Rate Estimated Value
Company A \$42,274 0.09 \$38,783.49
Company B \$13,658 0.12 \$12,194.64
"Before A+B" \$55,932 0.10 \$50,978.13
Benefits -------------------------- ---------------------- ---------------------
Less Currency Risk \$1,850 0.05 \$1,761.90
Cost Reduction \$2,040 0.12 \$1,821.43
Long-term growth \$4,320 0.18 \$3,661.02
"After AB" ---------------------- ----------------------- ---------------------

We could use PV for estimation. You can see the computation part in Excel file.

2.) Firm X is considering the acquisition of firm Y for cash. Given the information supplied in the table below:
a.) what price should firm x pay for firm Y if it gives 1/3 of the synergistic benefits to firm Y shareholders?

The price would be 2/3 of the nominal price.

b.) Complete the table given the price determined in (a)

Table 2 Firm X Firm Y Synergy XY
Beginning Value \$470,000 \$114,000 \$78,000
Shares Outstanding 'before' 34,800 12,000 ------------------
Price paid for ...

#### Solution Summary

This solution provides answers to various finance-related questions. It determines the annual cash flow discount rate estimated values.

\$2.19