Use BSL's actual financial data for 2010 and its projections for 2011 to 2015 as shown above.Estimate BSL's value (in $ millions)at the end of 2010 assuming that at year-end 2015 the company's equity is worth 15 times earnings after tax and its debt is worth book value.The WACC of the acquiring firm (Macklemore)is 8.0 percent,BSL's WACC is 11.5 percent,and the average of the two companies' WACCs,weighted by sales,is 8.2 percent.

Question

Quizplus · Accepted Answer

First, we need to calculate BSL's equity value at the end of 2015. We can do this by using the following formula:

Equity Value = Earnings After Tax * 15

We need to use BSL's projected earnings after tax for 2015 to get the equity value. From the table above, we can see that BSL's projected earnings after tax for 2015 is $422.5 million.

Plugging this value into the formula, we get:

Equity Value = $422.5 million * 15 = $6,337.5 million

Next, we need to calculate BSL's total value at the end of 2010 using the following formula:

Total Value = Equity Value + Debt Value

To calculate the debt value, we need to use BSL's book value of debt at the end of 2010. From the table above, we can see that BSL's book value of debt at the end of 2010 is $1,279.3 million.

Plugging the values into the formula, we get:

Total Value = $6,337.5 million + $1,279.3 million = $7,616.8 million

Finally, we need to adjust this value based on the weighted average cost of capital (WACC) of the two companies. The formula to adjust for WACC is:

Adjusted Value = Unadjusted Value / (1 + WACC)

The WACC used here is the average of the two companies' WACCs, weighted by sales, which is 8.2 percent.

Plugging the values into the formula, we get:

Adjusted Value = $7,616.8 million / (1 + 0.082) = $6,343.8 million

Therefore, the estimated value of BSL at the end of 2010 is $6,343.8 million, which is closest to choice D ($6,343.81 million).

Use BSL's Actual Financial Data for 2010 and Its Projections