Download: Big Corp Solution

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You have been hired as a consultant by Bigg Corp. to advise on the value of a possible merger target. You have gathered the following information about the target. Target Enterprises, Year-End 2012: Shares Outstanding: 50 M. Short-term debt, Book Value = Market Value = $76 M. Long-term bonds, Book Value = $2,000 M, 15 years to maturity, 8% coupon paid semi-annually, similar bonds priced in the market place to yield 9.74%. WACC = 14%. Target Enterprises, Year Ending 2012: Free Cash Flow = $80 M. Due to a newly introduced, first-to-market product, FCF is expected to grow by 20% in 2013 and another 20% in 2014. FCF is expected to show more modest growth of 12% in 2015 and the best estimate at this time is that FCF will continue to grow annually at 12% thereafter. a. (3 points) Estimate FCF for 2013, 2014, and 2015. (Answer to nearest $M.) b. (3 points) Estimate the value (V14) of Target as of year-end 2014. (Nearest $M.) c. (4 points) Estimate the value (V12) of Target today. (Nearest $M). d. (4 points) Determine the market value of Target’s long-term debt. (Nearest $M.) e. (1 points) Determine the market value (D) of Target’s total debt. (Nearest $M.) f. (2 points) Estimate the value (S) of Target’s common equity. (Nearest $M.) g. (3 points) What is the maximum price that you will advise Bigg to offer per share of Target’s common stock? (Answer in dollars and cents.)
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