Valuation (PLEASE NOTE THAT NUMBERS ARE DIFFERENT THAN IN TEXTBOOK) Hastings Cor
ID: 2762452 • Letter: V
Question
Valuation (PLEASE NOTE THAT NUMBERS ARE DIFFERENT THAN IN TEXTBOOK)
Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.9%. Assume that the risk-free rate of interest is 7% and the market risk premium is 5%. Both Vandell and Hastings face a 30% tax rate.
.
Vandell's free cash flow (FCF0) is $1 million per year and is expected to grow at a constant rate of 5% a year; its beta is 1.40. What is the value of Vandell's operations? (Hint: Use the corporate valuation model.) Round your answer to two decimal places. Do not round intermediate calculations.
$ ________ million
.
If Vandell has $10.65 million in debt, what is the current value of Vandell's stock? (Hint: Use the corporate valuation model.) Round your answer to the nearest cent. Do not round intermediate calculations.
$ ________ /share
Explanation / Answer
Vandell's free cash flow (FCF0) is $1 million per year and is expected to grow at a constant rate of 5% a year; its beta is 1.40. What is the value of Vandell's operations?
If Vandell has $10.65 million in debt, what is the current value of Vandell's stock? (Hint: Use the corporate valuation model.) Round your answer to the nearest cent. Do not round intermediate calculations.
Cost Of Capital Equity =7%+1.4*(5%) 14% Debt =7.9%*(1-0.30) 6%Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.