Hastings Estimates That If It Acquires Vandell Interest Payments Will Be 1 500 0

Hastings estimates that if it acquires Vandell, interest payments will be $1,500,000per year for 3 years, after which the current target capital structure of 30% debtwill be maintained. Interest in the fourth year will be $1.472 million, after whichinterest and the tax shield will grow at 5%. Synergies will cause the free cash flowsto be $2.5 million, $2.9 million, $3.4 million, and $3.57 million in Years 1 through 4,respectively, after which the free cash flows will grow at a 5% rate. What is theunlevered value of Vandell, and what is the value of its tax shields? What is the pershare value of Vandell to Hastings Corporation? Assume that Vandell now has$10.82 million in debt.

Question:Hastings estimates that if it acquires Vandell, interest payments will be $1,500,000 per year for 3 years, after which the current target capital structure of 30% debt will be maintained….

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