Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )
payingtherightpricefora targetfirm.InFigure15.1, we breakthepricepaidonanacquisitionintoamarketpriceand apremiumoverthatprice.No ...
beworth$2billion,butpaying$3billionasapremiumtoget theacquisitiondonewilldestroy$1billionoftheacquiring company’s stockholder we ...
Thecombined firmmay be ableto earnhigher returnsonitsinvestmentsthanthefirmswereableto generate independently, thus increasing ...
Acquiring FirmTarget Firm Pretax cost of debt 5% 5% Tax rate 30% 30% Debt-to-capital ratio 10% 10% Revenues $1,000 $500 Operatin ...
Theexpectedgrowthrateforthenextfiveyearsistheproduct ofthereinvestmentrateandtheaftertaxreturnoncapital.The valueofthecombinedfi ...
reinvestment rate remains unchanged, as do the other assumptions in the valuation. The value of synergy is estimated in the foll ...
The higher reinvestment rate pushes up expected growth during the high-growth period and generates a value for synergy of $24.02 ...
P&G had earnings before interest and taxes of $10,927milliononrevenuesof$56,741million.The tax rate for the firm is 35%. Th ...
Basedontheseinputs,thecashflowstoP&Goverthenext fiveyearsandfortheterminalvaluecanbecalculated(dollar amounts in millions): ...
risk-freerateof4.25%andariskpremiumof4%,the resulting cost of capital for the firm is 7.39%. Wewillassumethattheaveragereinvest ...
Theterminalvalueisestimatedusingthecashflowsinthe terminalyear,thecostofcapitalinperpetuity(7.39%),and the expected growth rate ...
increasethecombinedfirm’spretaxoperatingincome by $200 million. Thecombined firmwillalsobe able togeneratea slightlyhigherafter ...
Basedontheseassumptions,thecashflowsandvalueofthe combined firm, with synergy, can be estimated (dollar amounts in millions): As ...
Value of combined firm (with no synergy)$158,467 million Value of synergy $5,405 million Thisvaluationisbasedonthepresumptiontha ...
notcapture.Theseoptionscanbetheresultofmoregrowth opportunities or a better competitive position for the combinedfirmormoreadvan ...
Atakeovermotivatedonlybydiversificationconsiderations should,byitself,havenoeffectonthecombinedvalueofthe twofirmsinvolvedin the ...
averagecostofcapitalandthevalueofthefirmsareshownin Table 15.3. TABLE 15.3Value of Lube& Auto, Dalton Motors,and Combined Fi ...
diversifyingintobusinessesinwhichtheacquiringfirmhas littleexpertisecanresultinlessefficientoperationsafterthe merger (reverse s ...
reasons.Thefirstislimitedaccesstocapitalmarketsandthe resultingcapital-rationingconstraint.Smallfirmsandprivate businessesoftenh ...
combinedfirm.Asasimpleexample,assumethatfirmAis cash richand project poor and has a cash balanceof $10 billion.AssumethatfirmBis ...
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