# Annual Cash Flow Discount Rate Estimated Values

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.