MGMT 332 Embry Riddle Aeronautical University Module 6 Transactions Worksheet

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Business Finance

MGMT 332

Embry Riddle Aeronautical University



Answer the Module 6 Problem Set questions using the Excel spreadsheet provided.

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Transactions EPS EBITDA Premium Values for past transactions: - Average EPS Aerial EPS Average EPS Multiple Equity Value per Share EBITDA Aerial EBITDA (in M$, last 4Q) Average EBITDA Multiple Firm Value Debt Value Equity Value Equity Value per Share Premium Pre-Merger Announcement Stock Price Average Premium Multiple # of shares outstanding (M) Last 4Q Average price per share using 3 references Cost of Equity Rf Beta Market Premium Equity Cost Eastern Western Northern Cost of Debt Rd Debt/Assets Eastern Western Northern Weighed Average Cost of Capital WACC Eastern Western Northern Tax rate 2019 Dividends Dividends Growth/yr. Eastern Western Northern Dividend Stream 2020 2021 Eastern Western Northern DDM Value of each Firm $/share Eastern Western Northern TV No content - Intentionally left blank MGMT 332 Corporate Finance I Module 6: Return, Risk, and the Cost of Capital Problem Set 6 – Return, Risk, and the Cost of Capital 1. Argo Airlines is looking to buy Aerial Airlines. Your boss, the CFO, wants a quick and dirty valuation of Aerial. You choose to look at past transactions in the airline industry to get some numbers. You find the following from reported transactions for the average price paid: a. 17x the acquired firm’s earnings per share (EPS) b. 5.5x EBITDA c. 33.0% premium of share price For Aerial, you find out the following: a. EPS = $3.00 b. EBITDA = $755 million (debt value = $1,100 million) c. Stock Price = $41.25 (65 million shares outstanding) Using EPS, EBITDA, and premium over stock price, what should be Aerial's prices per share? What is the average of the three? 2. You have been asked to calculate the cost of equity for three firms - Eastern, Western, and Northern. You know the following: Firm Beta Cost of Debt Debt/Assets Eastern 1.80 3.3% 37% Western 1.45 3.8% 69% Northern 1.20 2.9% 40% You know the following: • • • 10-year Treasury yield = 1.10% Market Premium = 5.5% Average Tax Rate = 21% What are the expected returns on equity and WACCs for each of these firms? CONTINUES ON THE NEXT PAGE March 2021 | MGMT 332 | College of Business | All rights are reserved. The material contained herein is the copyright property of Embry-Riddle Aeronautical University, Daytona Beach, Florida, 32114. No part of this material may be reproduced, stored in a retrieval system or transmitted in any form, electronic, mechanical, photocopying, recording or otherwise without the prior written consent of the University. 3. You have been asked to calculate the dividend discount model-based price per share for the three airlines shown above. You know the following for 2019: Firm Dividend Growth/year Eastern 3.05 3.1% Western 2.00 2.0% Northern 2.20 2.7% You already know their WACCs, so you can use them to present value the stream of dividends. Remember that the terminal value uses the perpetuity formula and that it automatically shows the value as of the beginning of the year when it is calculated! Page 2 of 2
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Explanation & Answer

View attached explanation and answer. Let me know if you have any questions.Hello buddy here is the complete assignment kindly take a look at it and get back to me just incase of anything. Thank you

Values for past transactions:
- Average
Aerial EPS
Average EPS Multip...

Just the thing I needed, saved me a lot of time.


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