英语论文网

wnership of the toll-road will transfer to the State in exchange for the payment of $1.00.
The expected cash flows (in $ millions) on the project are as follows:
start of the first year. Interest is payable annually in arrears and the loan is to be repaid in equal installments of $60 million per year at the end of each of the 15 years of the project’s life.
A set of comparator firms suggests the appropriate cost of equity for the project is 15% per annum based on a leverage ratio of 67% and a debt本Assignment由代写Assignment网www.51lunwen.org提供  beta of 0. Assume thecorporate tax rate is 40%, the risk free rate is 10% per annum, the expected marketrisk premium is 6% per annum and expected returns are estimated using the CAPM.What is the (current) value of a 20% equity interest in the project ?Hint: Be careful with your tax calculation since in this case, capital expenditure doesnot equal depreciation each year.

QUESTION 2

Refer to the attached case study from the Harvard Business School case collection:
Time Inc.’s Entry into the Entertainment Industry (A).
Assume you are an executive in the strategic planning team of Time Inc. (“Time”). Thechief financial officer (“CFO”) has asked for your assistance in relation to a number ofissues associated with the planned merger with Warner Communications (“Warner”).
In particular, the CFO has asked you to report back to him on the following items:
(a) The Proposed Merger Terms
It is currently proposed that the merger will proceed by way of a stock swap in
which Time will issue 0.465 new shares https://www.51lunwen.org/StudentPapers.html (in Time) for each Warner share. How
then will the merger gains be shared between our shareholders and the
shareholders of Warner ?
(b) The Valuation of Warner by Time’s Investment Bankers
There are a number of aspects associated with the valuation of Warner by
Shearson Lehman Hutton and Wasserstein, Perella and Co. which are not
clear:
(i) How does the first table in Exhibit 8 reconcile with the second table in Exhibit 8 ?
(ii) According to footnote b to the second table in Exhibit 8, “Terminal value [is] apparently based on multiples of 1998 EBIT, not 1998 free cash flow”.1
What is the estimated 1998 EBIT ? Is this reasonable given the forecast 1998 free cash flow of $1378 million ?
(iii) How should we interpret the discount rate used in the second table of Exhibit 8 – i.e. is it a WACC or a cost of equity or something else ? Is the range of discount rates (from 10% – 13%) reasonable, given the other information that we have ?
(c) The Poison Pill
Paramount has conditioned its tender offer for Time on (amongst other things) the termination of the poison pill arrangement between Time and Warner. In the absence of this condition, what would be the impact of the poison pill on the Paramount bid ?
To assist in the preparation of your report, you have been provided with the following additional Information:
● It is believed that the pre-announcement stock prices (i.e. 3 March1989) of both
Time and Warner do not include any takeover speculation and are suitable for estimating the value of each firm as separate operations.
● Based on internal analysis by Time and Warner executives, the expected synergies from the merger is $1 billion in present value terms.
● The corporate tax rate (from both Federal and State taxes) is 40%
● The expected market risk premium is 8%
● You can ignore any convertible or preferred stockholders in bo本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。