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In 1985, General Motors was evaluating the acquisition of Hughes Aircraft Corporation,

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In 1985, General Motors was evaluating the acquisition of Hughes Aircraft Corporation, and;assumed that Hughes was of approximately the same risk as Lockheed and Northrop. Given the;following information in the table, and also assuming that cash flows are perpetual, compute the;value of Hughes using the WACC approach;Firm?E D/E;GM 1.20 0.40;Lockheed 0.90 0.90;Northrop 0.85 0.70;Target D/E for acquisition of Hughes = 1;Hughes?s expected unlevered cash flow next year = $300 million;Growth rate of cash flows for Hughes = 5% per year;Tc = 34%;Appropriate discount rate on debt: Rf = 8%;Expected return on the market portfolio: E(Rm)=14%;Additional Requirements;Min Pages: 2;Level of Detail: Show all work

 

Paper#25449 | Written in 18-Jul-2015

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