August Holdings Ltd and Sunday Ltd Merger

August Holdings Ltd and Sunday Ltd Merger

August Holdings Ltd and Sunday Ltd Merger for $3 Only (Instant Download)

August Holdings Ltd and Sunday Ltd are considering a merger. Sunday Ltd is a listed company with total assets amounting to N$135 million. Its debt ratio is 25% and cost 9%. August Ltd has estimated that the free cash flow will be as follows:

Year FCF

$m
1 13
2 15
3 17.5
4 20

From year 5 and beyond free cash flows will grow at 6 percent indefinitely. These cash flows include all acquisition effects. The cost of equity for August Ltd is 14% since it has higher debt.
Required:
(a) What discount rate should be used to discount the estimated cash flows?4 marks
(b) What is the dollar value of Sunday Ltd? 6 marks
(c) How much is August Ltd prepared to pay for Sunday Ltd? 6 marks
(d) Explain the meaning of the following terms:
(i) Synergy
(ii) Divestiture
(iii) Leveraged buyout 9 marks

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