Raymond Supply,a national hardware chain,is considering purchasing a smaller chain,Strauss & Glazer Parts (SGP).Raymond's analysts project that the merger will result in the following incremental free cash flows,tax shields,and horizon values: Assume that all cash flows occur at the end of the year.SGP is currently financed with 30% debt at a rate of 10%.The acquisition would be made immediately,and if it is undertaken,SGP would retain its current $15 million of debt and issue enough new debt to continue at the 30% target level.The interest rate would remain the same.SGP's pre-merger beta is 2.0,and its post-merger tax rate would be 34%.The risk-free rate is 8% and the market risk premium is 4%.What is the value of SGP to Raymond?

Question

Raymond Supply,a national hardware chain,is considering purchasing a smaller chain,Strauss & Glazer Parts (SGP).Raymond's analysts project that the merger will result in the following incremental free cash flows,tax shields,and horizon values:  Assume that all cash flows occur at the end of the year.SGP is currently financed with 30% debt at a rate of 10%.The acquisition would be made immediately,and if it is undertaken,SGP would retain its current $15 million of debt and issue enough new debt to continue at the 30% target level.The interest rate would remain the same.SGP's pre-merger beta is 2.0,and its post-merger tax rate would be 34%.The risk-free rate is 8% and the market risk premium is 4%.What is the value of SGP to Raymond?

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The Answer of Raymond Supply,a national hardware chain,is considering purchasing a smaller chain,Strauss & Glazer Parts (SGP).Raymond's analysts project that the merger will result in the following incremental free cash flows,tax shields,and horizon values:  Assume that all cash flows occur at the end of the year.SGP is currently financed with 30% debt at a rate of 10%.The acquisition would be made immediately,and if it is undertaken,SGP would retain its current $15 million of debt and issue enough new debt to continue at the 30% target level.The interest rate would remain the same.SGP's pre-merger beta is 2.0,and its post-merger tax rate would be 34%.The risk-free rate is 8% and the market risk premium is 4%.What is the value of SGP to Raymond?

Raymond Supply,a National Hardware Chain,is Considering Purchasing a Smaller Chain,Strauss