What are the two key items needed to apply the discounted cash flow (DCF) method to value a target company in a merger?
Explanation
The Discounted Cash Flow (DCF) approach values a company based on the present value of its future cash flows. Therefore, the essential inputs are the forecasts of those cash flows and an appropriate rate to discount them back to the present.
Other questions
What is the primary motivation for most corporate mergers?
How can tax considerations stimulate a merger between a profitable firm and a firm with large accumulated tax losses?
What defines a horizontal merger?
What type of merger occurs when a steel producer acquires an iron mining firm?
What is a tender offer in the context of mergers and acquisitions?
When using the equity residual method to value a target firm, what is the appropriate discount rate for the cash flows?
If Hightech acquires Apex, and Apex's beta is 1.63, the risk-free rate is 6 percent, and the market risk premium is 5 percent, what is Apex's post-merger cost of equity?
Based on the DCF analysis for the Apex subsidiary, which projects cash flows of dollar 6.4, dollar 8.8, dollar 9.8, and dollar 10.2 million for years 1-4 respectively, and a continuing value of dollar 139.0 million in year 5, what is the value of Apex's stock to Hightech if the discount rate is 14.2 percent?
Given that the DCF value of Apex to Hightech is dollar 96.5 million and Apex's pre-merger market value is dollar 62.5 million, what are the estimated synergistic benefits from the merger?
What is a 'white knight' in the context of merger defense?
Which of the following best describes a 'poison pill' as a defensive tactic?
What are 'golden parachutes' in the context of mergers?
According to the empirical evidence on mergers, who are the primary beneficiaries of the value created?
What is a joint venture?
What is a leveraged buyout (LBO)?
Which type of divestiture involves giving the stock of a subsidiary to the parent company's stockholders, creating a new, separate company?
What is a 'carve-out'?
Pizza Place's analysts project that a merger with Western Mountain Pizza will result in incremental cash flows of dollar 1.5 million in Year 1, dollar 2 million in Year 2, dollar 3 million in Year 3, and dollar 5 million in Year 4. Cash flows are expected to grow at a constant 6 percent after Year 4. The risk-free rate is 6 percent, the market risk premium is 4 percent, and Western’s post-merger beta is 1.5. What is the value of Western Mountain Pizza to Pizza Place?
A 'congeneric' merger is best described as a combination of which of the following?
What does the term 'breakup value' refer to in merger analysis?
What is 'due diligence' in the context of a merger?
When a large, publicly owned firm acquires a small, owner-managed firm, what is a common concern for the owner-manager that might be addressed during negotiations?
What is the primary difference between a corporate alliance and a merger?
What is risk arbitrage in the context of mergers?
A conglomerate merger is one that involves which of the following?
In a merger situation, what is the primary difference between an operating merger and a financial merger?
Why might a firm's management be motivated to pursue a merger for personal incentives rather than for shareholder value maximization?
What does a 'white squire' defense entail?
What is a major reason that LBOs were prevalent in the 1980s merger wave?
Which type of divestiture involves selling the assets of a division piecemeal rather than as a going concern?
In the Hightech-Apex merger example, the bargaining range for the acquisition price is between which two values?
What is the most likely legal justification for the Department of Justice to oppose a merger?
In what merger wave did conglomerates become popular?
What is the primary reason an acquiring firm's shareholders often do not benefit financially from a merger?
What is the primary goal of the equity residual method in a DCF valuation of a merger target?
Why are interest expenses typically incorporated into the cash flow forecast in a merger analysis, unlike in a standard capital budgeting analysis?
What is the key difference between a merger and a spin-off?
What type of synergy results from economies of scale in management, marketing, production, or distribution?
In a friendly merger, why would both the acquiring and target firms each hire an investment bank to provide a fairness opinion?
Which of the following is a primary reason for a firm to engage in a spin-off?
What is the key characteristic of a financial merger?
In the market multiple analysis of Apex, which had average net income of dollar 7.7 million and was compared to firms with an average P/E of 12.5, what is the estimated equity value?
Which of the following is a primary role of an investment banker in arranging a merger?
Why would a firm choose to do a corporate alliance, such as a joint venture, instead of a full merger?
What is the primary risk associated with a leveraged buyout (LBO) transaction?
What is a 'defensive merger'?
The fifth and most recent merger wave is characterized by what primary driver?
In a post-merger control situation, what is a noncompete agreement?
What is a key finding from research on fairness opinions in friendly mergers?