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
a) KRF=2% RPM=8% B=0.9
b) wd=35% ws=65% rd=10% rs=9.2% Tax = ...
The requires rate of return, WACC and equity value of Hyatt Corporation is calculated.