On December 8, 2015, ABC store announced they were buying 123 Co for $13.9 billion. The...

50.1K

Verified Solution

Question

Finance

On December 8, 2015, ABC store announced they were buying 123 Cofor $13.9 billion. The deal was for $92 per share, a 78% premium to123 CO.December 4 closing price of $51.70 per share.Summaryfinancial data for 123 Co before the deal is shown below (equityshown is Book Value). the company’s equity beta before the buyoutproposal is 1.0, the same level as the overall market.ABC storeannounced that they would operate 123 Co similarly to their otherbrands, with a 40% debt:capital ratio (D/(D+E). Because of theirsize and diversification, ABC store expected to reduce 123 Coborrowing cost by 1%, and to lower the tax rate to30%.Question Calculate 123 Coweighted average cost of capital before the acquisition (using bookvalue weights) and after the acquisition using the new proposedcapital structure weights of 40% debt:capital. SHOW ALL STEPS INYOUR CALCULATIONS In a couple sentences, explain yourresults.
sales $4585 mill ; net income $495 mill; long term interestexpense 33.7 mill; long term debt 410 mill; equity $3,550 mill; taxrate 35%; dividend yeild 2.10%; stock price 52 week high/low =$139.70/$45.30; Risk free rate Rf 2.0%; Rm-Rf spread 6%

Answer & Explanation Solved by verified expert

4.1 Ratings (599 Votes)

PreAcquisition Weighted Average Cost of Capital Long Term Debt 410 million Equity 3550 million Total Capital 410 3550 3960 million Equity Proportion 3550 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member