I have been tasked to evaluate a potential acquisition. The acquisition candidate produces an EBITA...
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I have been tasked to evaluate a potential acquisition. The acquisition candidate produces an EBITA of $1,378.80 (in millions) with a sale price of $11,030.40 (millions). Current debt costs 8% to be amortized over 7 years. Current return on equity is 15%. Current WACC is 10%. Tax rate is 30% (constant). 80% of the purchase price is considered depreciable assets - depreciated over ten years on a straight line basis with no residual values. Residual value for this operation is to be 2x current EBITDA in year 10. Create an after-tax cash flow analysis to answer the following: Economic analysis: is this a a fundamentally sound investment? Using the tax cash flows and no debt (pure equity) is the prospect a positive NPV using ROE as the hurdle rate? Using the after tax cash flows and the firm's WACC, is this project desirable?
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