Purchase Solution

# Value of debt and tender offer

Not what you're looking for?

Company A has a tax rate of 20% and purchases and has a bond yielding 10%. What is Kd?

Lindbergh Airlines is planning to make an offer for Flight Simulators, Inc. The stock of Flight Simulators is currently selling for \$30 a share.

a. If the tender offer is planned at a premium of 60 percent over market price, what will be the value offered per share for Flight Simulators?
b. Suppose before the offer is actually announced, the stock price of Flight Simulators, Inc., goes to \$42 because of strong merger rumors. If you buy the stock at that price and the merger goes through (at the price computed in part a), what will be your percentage gain?
c. Because there is always the possibility that the merger could be called off after it is announced, you also want to consider your percentage loss if that happens. Assume you buy the stock at \$42 and it falls back to its original value after the merger cancellation. What will be your percentage loss?

##### Solution Summary

The solution explains how to calculate the after tax cost of debt and some calculations relating to tender offer.

##### Solution Preview

Company A has a tax rate of 20% and purchases and has a bond yielding 10%. What is Kd?

Kd is the after tax cost of debt and is calculated as before tax cost X (1-tax rate). Here
before tax cost = 10%
tax rate = 20%
Kd = after tax cost of debt = 10% X (1-20%) = 8%

Lindbergh Airlines is planning to make an offer for Flight Simulators, Inc. The stock of Flight Simulators ...

##### Free BrainMass Quizzes

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.

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

##### Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

##### Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.