On December 8, 2015, ABC store announced they were buying 123 Cofor $13.9 billion. The deal was for $92 per share, a 78% premium to123 CO.December 4 closing price of $51.70 per share.Summaryfinancial data for 123 Co before the deal is shown below (equityshown is Book Value). the company’s equity beta before the buyoutproposal is 1.0, the same level as the overall market.ABC storeannounced that they would operate 123 Co similarly to their otherbrands, with a 40% debt:capital ratio (D/(D+E). Because of theirsize and diversification, ABC store expected to reduce 123 Coborrowing cost by 1%, and to lower the tax rate to30%.Question Calculate 123 Coweighted average cost of capital before the acquisition (using bookvalue weights) and after the acquisition using the new proposedcapital structure weights of 40% debt:capital. SHOW ALL STEPS INYOUR CALCULATIONS In a couple sentences, explain yourresults.
sales $4585 mill ; net income $495 mill; long term interestexpense 33.7 mill; long term debt 410 mill; equity $3,550 mill; taxrate 35%; dividend yeild 2.10%; stock price 52 week high/low =$139.70/$45.30; Risk free rate Rf 2.0%; Rm-Rf spread 6%
