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Hello students, here is a question.
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Yamm ltd.
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Y has been evaluating the acquisition of exware ltd.
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The annual expected cash flow of y and x are respective of 1 .16 million per annum in perpetuality and 640 ,000 per annum in a perpetuality.
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These cash flows are expected to unaffected by turnover.
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The systematic risk beta y is 0 .75 and x is 1 .0.
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The risk -free rate of interest rate is 10 % and expected excess return on the market portfolio is 6%.
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Calculate the price at which x presents a zero net present value of an investment.
00:39
So, we have two questions in this.
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Is it likely that y shareholders will benefit from the takeover? and the b option is assume that information above expected that x is expected to increase the annual cash flow of 150 ,000 per annum.
00:53
If y were the pay, a control premium of 1 million, would this deal be benefit for y shareholders? so, these two questions we need to solve.
01:02
So, expected return as per capm is of x is rf plus beta x rm minus rf that is 10 % plus 1 into 6 % is equal to 16%.
01:24
So, the value will be 640 ,000 per annum perpetuality with 16 % rate.
01:34
So, it is likely that y shareholders will benefit from the takeover because the expected rate of return, the expected rate of return will be capm is 10 % plus 0 .75 into 6 % which gives us 14 .5%.
01:55
So, which means that after takeover this will demand an expected return of unit x...