Purchase Solution

How do you calculate the required rate of return, WACC, and equity value of Hyatt Corporation?

Not what you're looking for?

Ask Custom Question

Need help with the following questions.

Reuth Corporation is interested in acquiring Hyatt Corporation. Hyatt has 5 million shares outstanding and a target capital structure consisting of 35 percent debt. Reuth's debt interest rate is 10 percent. Assume that the risk-free rate of interest is 2 percent and the market risk premium is 8 percent.

Hyatt's free cash flow (FCF0) is $5 million per year and is expected to grow at a constant rate of 5 percent a year; its beta is .9. Hyatt has $10 million in debt. The tax rate for both companies is 30 percent.

a. Calculate the required rate of return on equity using equation: rs= KRF + RPM(b)
b. Calculate weighted average cost of capital, using equation: WACC = Wdrd(1-%) + wsrs
c. Calculate the value of operations, using equation: Vops = FCF0(1+g)/WACC - g)
d. Calculate the value of the company's equity, using equation: Vs = Vops - debt
e. Calculate the current value of the company's stock, using equation:
Price per share = Vs/shares outstanding

Purchase this Solution
Solution Summary

The requires rate of return, WACC and equity value of Hyatt Corporation is calculated.

Solution Preview

a) KRF=2% RPM=8% B=0.9
rs=2%+0.9*8%=9.2%

b) wd=35% ws=65% rd=10% rs=9.2% Tax = ...

Purchase this Solution
Free BrainMass Quizzes
Operations Management

This quiz tests a student's knowledge about Operations Management

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

View More Free Quizzes
Related BrainMass Solutions

  • Stock Valuations

    Hyatt has $10 million in debt. The tax rate for both companies is 30 percent. a. Calculate the required rate of return on equity using equation: rs= KRF + RPM(b) b.

  • Rate of Return on equity

    82548 Required rate of return on equity, weighted average cost of capital, value of operations, value of the company's equity, value of the company's stock Reuth Corporation is interested in acquiring Hyatt Corporation.

  • Annual Report: Company Analysis

    Using the cost of equity and the cost of debt, calculate the "Weighted Average Cost of Capital" (WACC). You will also have to decide on what to use as the risk free rate.

  • Cost of capital, Capital Budgeting

    433140 Financial management: required return, beta, terminal value, WACC, project selection 8-16 You have been managing a 5 million portfolio that has a beta of 1.25 and a required rate of return of 12%. the current risk free rate is 5.25%.

  • Acquiring Tantrell Corporation

    Calculate the required rate of return on equity using equation: r s= KRF + RPM(b) b. Calculate weighted average cost of capital, using equation: WACC = W drd(1-%) + w sr c.

  • Fiera Co. : Capital Structure and Capital Budgeting

    The firm's stockholders have a required rate of return of 18.36%, and it bold holders expect a 10.68% rate of return. The project is expected to generate annual cash flows of $13,000 before taxes for the next two decades.

  • Calculating WACC

    To use this equation below, again you would need to calculate the market value of the firm's equity and the market value of the firm's debt to calculate the WACC.

  • The Shrieve Corporation: After-Tax Returns; Ludwig Corporation Stock; Tysseland Company: Capital Structure

    You expect it to pay dividends of $1.07, $1.1449, and $1.2250 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $26.22 at the end of 3 years. a) Calculate the growth rate in dividends.

  • Calculating WACC for Security Market Value

    33041 I need your help finding the answwes in calculating WACC. I need your help with this problem. How do I calculate WACC; Reactive Industries has the following capital structure. Its corporate tax rate is 35 percent. What is its WACC?

View More Related Solutions