Hastings Corporation is interested in acquiring Vandell Corporation. Vandell cur
ID: 2753246 • Letter: H
Question
Hastings Corporation is interested in acquiring Vandell Corporation. Vandell currently has a cost of equity of 10%; 25% of its financing is in the form of 6% debt, and the rest is in common equity. Its federal-plus-state tax rate is 36%. After the acquisition, Hastings expects Vandell to have the following FCFs and interest payments for the next three years (in millions):
After this, the free cash flows are expected to grow at a constant rate of 4.9%, and the capital structure will stabilize at 35% debt with an interest rate of 7%. What is the present value, in millions, of tax shield?
Year1 Year 2 Year 3 FCF $10 $20 $25 Interest expense 28 24 20.68Explanation / Answer
Hastings Corporation is interested in acquiring Vandell Corporation. Vandell cur
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