Home / Questions / Martin Technologies Inc a large electronics company is evaluating the possible acquisition...
Martin Technologies Inc., a large electronics company, is evaluating the possible acquisition of Columbia Electronics, a regional electronics company. MartinAc€?cs analysts project the following post-merger data for Columbia (in millions of dollars):
2015 | 2016 | 2017 | 2018 | |||||
Net sales |
$275 | $375 | $425 | $525 | ||||
Selling and administrative expense |
40 | 50 | 60 | 75 | ||||
Interest | 25 | 30 | 35 | 40 |
Tax rate after merger | 35% | |
Cost of goods sold as a percent of sales | 70% | |
Beta after merger | 1.2500 | |
Risk-free rate | 3% | |
Market risk premium | 7% | |
Continuing growth rate of cash flow available to Martin | 6% |
If the acquisition is made, it will occur on January 1, 2015. All cash flows shown in the income statements are assumed to occur at the end of the year. Columbia currently has a capital structure of 40% debt, but Martin would increase that to 50% if the acquisition were made. Columbia, if independent, would pay taxes at 20%; but its income would be taxed at 35% if it were consolidated. ColumbiaAc€?cs current market-determined beta is 1.15, and its investment bankers think that its beta would rise to 1.2500 if the debt ratio were increased to 50%. The cost of goods sold is expected to be 70% of sales, but it could vary somewhat. Depreciation-generated funds would be used to replace worn-out equipment, so they would not be available to MartinAc€?cs shareholders. The risk-free rate is 3%, and the market risk premium is 7%.
What is ColumbiaAc€?cs continuing value? Do not round intermediate calculations.
$___________ million (to 2 decimals)
Please give me the right answer!
May 19 2020 View more View Less
Use the definition of continuity and the properties of limits to show that the function is continuous at the given number a.
Jul 21 2021What will happen to monopoly price and profit if a monopoly’s fixed costs increase?
Jul 07 2021How would you justify to a group of sceptical line managers a high level of financial provision for training? Explain the steps you would take in order to ensure the effe...
May 21 2020Explain the decisions that led to the Oso disaster. What should have been done differently by which level of government?
Mar 13 2020Classify each compound as ionic or molecular:a. KClb. CO2c. N2Od. NaNO3
Jun 29 2021There are 42 gallons in a barrel of oil. The number of products produced and the proportion of the total are listed in the following table. Draw a graph to depict these n...
Jun 22 2020Central Processing Unit (CPU)
Mar 17 2020The Ksp of CaF2 is 3.9 × 10−11. What is the molar solubility of CaF2 in the water?
May 22 2021your organisation is contemplating going in to international business within the next two years as well as strengthen the local market competitive advantage. To attain th...
Aug 24 2020PROBLEM 13–27 Net Present Value Analysis of a New Product [LO1]Atwood Company has an opportunity to produce and sell a revolutionary new smoke detector for homes. To dete...
Jun 28 2020