1. ABC Corporation is currently trading at $30 per share. There are 10 million shares outstanding, and the company has no debt. You believe that the value of the company would increase by 50% if the management were replaced. How much would you gain from acquiring 50% of ABC's shares by borrowing, attaching the debt to the company and replacing the management?
A) $300M
B) $225M
C) $150M
D) $10M
2. A firm is liquidating a factory. Equipment that originally cost $120,000 is being sold for $12,000 three years after its purchase. The equipment straight-line depreciated across four years. The firm needs to recover $20,000 of net working capital, which was invested initially. Given that the firm’s marginal corporate tax rate is 40%, what is the terminal cash flow for this equipment?
$4,800
$7,200
$32,000
$39,200