You are analyzing the potential acquisition of Nothing Better! Ice Creams, Inc. by your firm, Needsalift, Inc. The ice cream firm is a wholly owned subsidiary of Grand Lake Investments, which has set a firm selling price of $10,000,000. From your work you estimate that Nothing Better! will generate the following incremental cash flows for Needsalift:
To fund the $10 million price, Needsalift can use $2 million from internal sources (retained earnings) with a required return of 15 percent, while the rest would come from a new debt issue yielding 10 percent. Needsalift's tax rate is 40 percent.
-What is the value of the proposed acquisition to Needsalift?

Question

You are analyzing the potential acquisition of Nothing Better! Ice Creams, Inc. by your firm, Needsalift, Inc. The ice cream firm is a wholly owned subsidiary of Grand Lake Investments, which has set a firm selling price of $10,000,000. From your work you estimate that Nothing Better! will generate the following incremental cash flows for Needsalift:
  To fund the $10 million price, Needsalift can use $2 million from internal sources (retained earnings) with a required return of 15 percent, while the rest would come from a new debt issue yielding 10 percent. Needsalift's tax rate is 40 percent.
-What is the value of the proposed acquisition to Needsalift?

Quizplus · Accepted Answer

The value of the proposed acquisition to Needsalift is calculated based on the provided financial metrics and assumptions. Without specific details on how these figures were derived (e.g., discount rates, cash flow projections, synergies), it's not possible to provide a step-by-step calculation. However, the correct answer is chosen based on the information given in the question, assuming it was derived from a detailed financial analysis.

You Are Analyzing the Potential Acquisition of Nothing Better! Ice