Combined Firm Value Flashcards
(5 cards)
1
Q
How to work out company asset beta for both companies
A
Beta x equity ratio /( equity ratio + debt ratio x non taxed profit rate)
2
Q
How to work out the combined asset beta
A
Company A asset beta x company A firm value / combined firm value
+
Company B asset beta x company B firm value / combined firm value
3
Q
Cost of equity
A
Government rate + combined beta x risk premium
4
Q
Cost of capital
A
Cost of equity * equity ratio
+
Borrowing rate * non taxable profit rate * debt ratio
5
Q
How do you layout the combined company value
A
Sales
Operating profit
Tax
Additional investment
FCF
Present value
Future value
Firm value
Total gain created
Estimated premium required to acquire company
Gain for shareholders
