Help! I need to find the value of equity using the APV method2015
Selling and administrative expense
Tax rate of ACC before the merger
Tax rate after merger
Cost of goods sold as a % of sales
Debt ratio (percent financed with debt) before the merger
Cost of debt before merger
Beta of ACC
Market risk premium
Terminal growth rate of free cash flow
Pre-merger debt (in thousands)
What is the equity value of the ACC to Wansley (Note use APV method)?
Wansley Portal Inc., a large Internet service provider, is evaluating the possible acquisition of Alabama Connections Company
(ACC), a regional Internet service provider.
Wansley's analysts project the following post merger data for ACC (in thousands of
All cash flows shown in the income statements are assumed to occur at the end of the year.
ACC currently has a capital structure of
30 percent debt, which costs 9 percent.
ACC, if independent, would pay taxes at 30 percent, but its income would be taxed at 35
percent if it were consolidated.
ACC's current market-determined beta is 1.40. The cost of goods sold including depreciation is
expected to be 65 percent of sales.
Gross investment in operating assets is expected to be equal to depreciation--replacing worn out
equipment, so net investment in operating assets will be zero. The risk-free rate is 7 percent, and the market risk premium is 6.5
ACC currently has $400,000 in debt outstanding. ACC has no short-term investment. Terminal growth rate of free cash flow
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