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5.Glassmakers has the below characteristics.

The premerger debt is $5, the premerger equity is $10. The risk free rate is 6%. The premerger beta is 1.36. The tax rate is 40%. The cost of debt premerger is 11%. The expected market rate of return is 10%.
The cash flows are : CF0 = 0; CF1 = 4,000,000; Nj = 3; CF2 = 19,000,000; I/YR = 11.29. What is the value of Glassmakers' equity? Value of equity=? (Round your answer to the closest thousand dollars.)

a) $16,019,000

b) $17,111,000

c) $18,916,000

d) $22,111,000

e) $22,916,000

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Beverley Smith
Beverley SmithLv2
29 Sep 2019
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Exhibit 5 Best Window & Door Corporation is considering the acquisition of Glassmakers Inc. Glassmakers has a capital structure consisting of $5 million (market value) of 11% bonds and $10 million (market value) of common stock. Glassmakers' pre-merger beta is 1.36. Best's beta is 1.02, and both it and Glassmakers face a 40% tax rate. Best's capital structure is 40% debt and 60% equity. The free cash flows from Glassmakers are estimated to be $3.0 million for each of the next 4 years and a horizon value of $10.0 million in Year 4. Tax savings are estimated to be $1 million for each of the next 4 years and a horizon value of $5 million in Year 4. New debt would be issued to finance the acquisition and retire the old debt, and this new debt would have an interest rate of 8%. Currently, the risk-free rate is 6.0% and the market risk premium is 4.0%. a.) Refer to Exhibit 5. What is Glassmakers' pre-merger WACC? b.)Refer to Exhibit 5. What discount rate should you use to discount Glassmakers' free cash flows and interest tax savings? c.)Refer to Exhibit 5. What is the value of Glassmakers' equity to Best? (Round your answer to the closest thousand dollars.)

Exhibit 5 Best Window & Door Corporation is considering the acquisition of Glassmakers Inc. Glassmakers has a capital structure consisting of $5 million (market value) of 11% bonds and $10 million (market value) of common stock. Glassmakers' pre-merger beta is 1.36. Best's beta is 1.02, and both it and Glassmakers face a 40% tax rate. Best's capital structure is 40% debt and 60% equity. The free cash flows from Glassmakers are estimated to be $3.0 million for each of the next 4 years and a horizon value of $10.0 million in Year 4. Tax savings are estimated to be $1 million for each of the next 4 years and a horizon value of $5 million in Year 4. New debt would be issued to finance the acquisition and retire the old debt, and this new debt would have an interest rate of 8%. Currently, the risk-free rate is 6.0% and the market risk premium is 4.0%.

What is Glassmakers' pre-merger WACC?

What discount rate should you use to discount Glassmakers' free cash flows and interest tax savings?

What is the value of Glassmakers' equity to Best?(Round your answer to the closest thousand dollars.)

Mostly, I need answers for the second and third Qs, detailed please

1.Providence Corporation is not publicly traded. The company has total debt of $1 million and total equity of $1 million. A company with comparable risk characteristics, other than capital structure related risks, has a beta of 1.5. That company has debt of $1 million and equity of $2 million. Each company has a tax rate of 34 percent. The risk-free rate is 6 percent and the expected return on the market portfolio is 12.5 percent. Estimate the required return on equity for Providence.

2.Dover Corporation is not publicly traded. However, a company that produces the same product has a beta of 1.5 and a debt to equity ratio of .8. The competitor has a tax rate of 34 percent amid pays interest of 8 percent on its debt. Dover has debt of $1 million and equity of $1.5 million. Dover pays a 34 percent tax rate and pays 7.5 percent interest on its debt. The expected return for the market portfolio is 12.5 percent, and the risk free rate is 6 percent. Compute the cost of equity capital for Dover.

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