# 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?

https://brainmass.com/business/annuity/annual-cash-flow-discount-rate-estimated-values-159071

#### 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.

Present Value of Expected Future Savings

At the end of 2005, Uma Corporation was considering undertaking a major long-term project in an effort to remain competitive in its industry. The production and sales departments determined the potential annual cash flow savings that could accrue to he firm if it acts soon. Specifically, they estimate that a mixed stream of future cash flow savings will occur at the end of the years 2006 through 2011. The years 2012 through 2016 will see consecutive and equal cash flow savings at the end

of each year. The firm estimates that its discount rate over the first 6 years will be 7%. The expected discount rate over the years 2012 through 20156 will be 11% The project managers will find the project acceptable if it results in present cash flow savings of at least $860,000.

a) Determine the value - at the beginning of 2006 - of the future cash flow savings expected to be generated by this project.

b) Should the firm undertake this project? Why or why not?

c) Help complete PV values in attaced spreadsheet.

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