1) How would you find out that the intrinsic value of target company? How would you use this information in M&A process? Why has M&A activity in current years increased at faster rate in Europe than in United States? Why would foreign buyers pay higher premium for United States target companies than U.S. buyers pay for U.S targets?
Requirements:
Min Pages: 2
Max Pages: 3
2) Using Discounted Cash Flow method and formula approach, compute maximum price that must be paid for target company – ABC Corporation. Here company has five years of supernormal growth and then no growth.
Given information ABC Corporation (all $ Amounts in Millions):
Ro: Initial Year Revenues: $5,000
n = Number of growth years: 5
m = Net Operating Income Margin 15.0%
T = Tax Rate 35.0%
g = Growth Rate 15.0%
I = Investment Rate 12.0%
k = Cost of Capital 12.0%
h = Calculation Relationship = [(1 + g)/(1 + k)] – 1.
How is M & A activity associated to capital budgeting? Give suitable example of current deal and describe the relationship.