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    Marston Marble Corporation Is Considering A Merger With The

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    Amit Pandey
    Marston Marble Corporation is considering a merger with Conroy Concrete Company. Conroy has been barely profitable, paying taxes at only 20%. If acquired, Marston would operate Conroy as a subsidiary and pay taxes at 35%. Marston would also increase Conroy's debt to 40% by Year 4 to fund operations, paying 9.5% interest. Conroy is projected to generate positive free cash flows from Years 1-5 that include the effects of the acquisition.

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    Marston Marble Corporation Is Considering A Merger With The

    Uploaded by

    Amit Pandey
    129 views1 page
    Marston Marble Corporation is considering a merger with Conroy Concrete Company. Conroy has been barely profitable, paying taxes at only 20%. If acquired, Marston would operate Conroy as a subsidiary and pay taxes at 35%. Marston would also increase Conroy's debt to 40% by Year 4 to fund operations, paying 9.5% interest. Conroy is projected to generate positive free cash flows from Years 1-5 that include the effects of the acquisition.

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    Marston Marble Corporation is considering a merger with Conroy Concrete Company. Conroy has been barely profitable, paying taxes at only 20%. If acquired, Marston would operate Conroy as a subsidiary and pay taxes at 35%. Marston would also increase Conroy's debt to 40% by Year 4 to fund operations, paying 9.5% interest. Conroy is projected to generate positive free cash flows from Years 1-5 that include the effects of the acquisition.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    129 views1 page

    Marston Marble Corporation Is Considering A Merger With The

    Uploaded by

    Amit Pandey
    Marston Marble Corporation is considering a merger with Conroy Concrete Company. Conroy has been barely profitable, paying taxes at only 20%. If acquired, Marston would operate Conroy as a subsidiary and pay taxes at 35%. Marston would also increase Conroy's debt to 40% by Year 4 to fund operations, paying 9.5% interest. Conroy is projected to generate positive free cash flows from Years 1-5 that include the effects of the acquisition.

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    Solved: Marston Marble Corporation is considering a

    merger with the

    Marston Marble Corporation is considering a merger with the Conroy Concrete Company.
    Conroy is a publicly traded company, and its beta is 1.30. Conroy has been barely profitable, so
    it has paid an average of only 20% in taxes during the last several years. In addition, it uses
    little debt; its target ratio is just 25%, with the cost of debt 9%. If the acquisition were made,
    Marston would operate Conroy as a separate, wholly owned subsidiary. Marston would pay
    taxes on a consolidated basis, and the tax rate would therefore increase to 35%. Marston also
    would increase the debt capitalization in the Conroy subsidiary to wd = 40%, for a total of
    $22.27 million in debt by the end of Year 4, and pay 9.5% on the debt. Marston’s acquisition
    department estimates that Conroy, if acquired, would generate the following free cash flows and
    interest expenses (in millions of dollars) in Years 1-5:

    In Year 5, Conroy’s interest expense would be based on its beginning-of-year (that is, the cnd-
    of-Ycar-4) debt, and in subsequent years both interest expense and free cash flows are
    projected to grow at a rate of 6%.
    These cash flows include all acquisition effects. .1arson’s cost of equity is 10.5%, its beta is
    1.0, and its cost of debt is 9.5%. The risk-free rite is 6%, and the market risk premium is 4.5%.
    a. What is the value of Conroy’s unlevered operations, and what is the value of Conroy’s tax
    shields under the proposed merger and financing arrangements?
    b. What is the dollar value of Conroy’s operations? If Conroy has $10 million in debt
    outstanding, how much would Marston be willing to pay forConroy?

    Marston Marble Corporation is considering a merger with the

    ANSWER
    https://solvedquest.com/marston-marble-corporation-is-considering-a-merger-with-the/

    Reach out to [email protected] for enquiry.


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