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10-8, 10-10, 10-11, Acquisition costs

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10-8
Pinewood Company purchased two buildings on four acres of land. The lump sum purchase price was $900,000. According to independent appraisals, the fair values were $450,000 (building A) and $250,000 (building B) for the buildings and $300,000 for the land.

Required
Determine the initial valuation of the buildings and the land.

10-10
Teradene Corporation purchased land as a factory site and contracted with Maxtor Construction to construct a factory. Teradene made the following expenditures related to the acquisition of the land, building and machinery to equip the factory:

Purchase price of the land $1,200,000
Demolition and removal of old building 80,000
Clearing and grading the land before construction 150,000
Various closing costs in connection with acquiring the land 42,000
Architect's fee for the plans for the new building 50,000
Payments to Maxtor for building construction 3,250,000
Machinery purchased 860,000
Freight charges on machinery 32,000
Trees, plants and other landscaping 45,000
Installation of sprinkler system for the machinery 5,000
Cost to build special platforms and install wiring for machinery 12,000
Cost of trail runs to ensure proper installation of machinery 7,000
Fire theft insurance on the factory for the first for the first year of use 24,000

In addition to the above expenditures, Teradene purchased four forklifts from Caterpillar. In payment Teradene paid $16,000 cash and signed a noninterest bearing note requiring the payment of $70,000 in one year. An interest rate of 7% properly reflects the time value of money for this type of loan.

Required
Determine the initial valuation of each of the assets Teradene acquired in acquired in above transactions.

10-11
On February 1, 2011, the Xilon Corporation issued 5,000 shares of its nonpar common stock in exchange for five acres of land located in the city of Monrovia. On the date of the acquisition Xilon's common stock had a fair value of $18.00. An office building was constructed on the site by an independent contractor. The building was completed on November 2, 2011, at a cost of $600,000. Xilon paid $400,000 in cash and the remainder was paid by the city of Monrovia.

Required
Prepare the journal entries to record the acquisition of the land and the building.

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https://brainmass.com/business/mergers-and-acquisitions/10-8-10-10-10-11-acquisition-costs-421848

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I have completed the tutorial in Excel (attached) for you (click in cells to see computations). Verify the amounts on E10-8 as there were some typos in the 000's. If you update the worksheet for correct amounts, the response will automatically update with the correct response.

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See Also This Related BrainMass Solution

I require assistance and help with these valuations, to allow me to write up a report on the company and to learn from the method used:

Company Valuation project - as part of a project, I am required to provide a financial Valuation of a Company using the valuation methods below. This is an Australian Company "Hills Industries" full details can be found at http://www.hills.com.au

I require assistance and help with these valuations, to allow me to write up a report on the company and to learn from the method used:

I need help with the following:

? The working out for each valuation method below and answers with calculations behind each valuation method. (if possible in a excel file so that I can review the method used) Plus a brief explanation of each method and results (so that I can them review the method and understand then and to expand and write a full report)

The only information given is the excel file attached hills.xls and suggested viewing of the annual reports for 2004 and/or 2003... also attached.

Any questions can be asked to me, via email at russ01@bigpond.net.au

Company Valuation - methods

Using fundamental analytical techniques

1. Dividend Discount Model + justifications (approx 1 page Double spaced)

a. Constant Growth model + explanation (300 words approx)

b. Differential Growth model + explanation (300 words approx)

Note a: How to apply Constant Growth Dividend Discount Model?

Step 1: Compute the beta of the stock
a) using regression
b) using spread sheet (Excel) - see illustration spreadsheet

Step 2: Look for a risk-free rate. Go to the website of Monetary Authority, such as RBA, to look for the yield of Treasury Bills (3-month) or Government Bonds

Step 3: Calculate the return of local stock market - by computing the average return of the Stock Index, such as AOI or ASX200 over a 48 or 60-month period

Step 4: Apply the CAPM formula to compute the r (Discount rate)
r = risk free rate + beta (return of AOI - risk free rate)

Step 5: Estimate the growth rate
a) using historical growth rate of Earnings per share
b) using the self sustainable growth rate = Retention ratio x ROE
c) using the industry growth rate
d) using the competitor's growth rate

Step 6: Apply the Constant growth DDM, where
Price = Current dividend (1 + growth rate) / (discount rate - growth rate)

Step 7: compare this estimated price with the current stock price. If the estimated price is higher than the current stock price, the stock is considered 'undervalue', you should make a 'buy' recommendation.

Note b: to apply a two-stage growth Dividend Discount Model?

The key points here are:

You have to estimate how long the high growth period will last.
Hint: You may simply assume 3 years or 4 years

You have to estimate a constant growth rate after the high growth period.
Hint: You may use the same constant growth rate mentioned earlier

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