Determining the value of equity


1) Susie corporation is considering acquisition of Rolly Inc. Rolly Inc has the capital structure consisting of 23million (market value) of 11% bonds and= $47 million (market value) of common stock. Rolly Inc's pre-merger beta is 1.36. Susie corporation’s beta is= 1.02, and both it and Rolly Inc face a 40% tax rate. Nancy's capital structure is 40% debt and 60% equity. The free cash flows from Rolly Inc are evaluated to be 6 million for each of next 4 years and the horizon value of= $20 million in year 4. Tax savings are evaluated to be= $1.5 million for each of next 4 years and the horizon value of= $10 million in year. New Debt would be issued in finance gaining and retire old debt, and this new debt would have the interest rate of 8%. Presently, risk free rate is 6.0% and market risk premium is 4.0%. Suppose, based on date the needed return is 13.29%. Determine the value of Rolly's equity to Susie corporation?

Request for Solution File

Ask an Expert for Answer!!
Finance Basics: Determining the value of equity
Reference No:- TGS014415

Expected delivery within 24 Hours