You work on the financial team of T-Mobile. During the current news section of the meeting, it was brought to your team’s attention that T-Mobile and Sprint
just got approval to merge. This is huge news and the question posed to your team is how does this benefit all parties? Now T-Mobile’s financial team must
go back and look at all that both companies have accomplished and what they would like to accomplish as a new company. As the financial manager, you
have to come up with a business plan that shows the benefits of the merger so that your team will be on board with all the new changes.
Instructions
Using the data that has been provided, create a business plan for T-Mobile and Sprint to merge that addresses the following:
Includes the financial position of each company by analyzing given financial statements.
Provides a collated financial ethics plan for the new merger.
Provides a new financial strategy to enhance the “one company” after the merger.
Analyzes joined company investments and recommends strategies to maximize returns and minimize risks.
Completes an industry trend analysis to determine the merger’s new financial sustainability.
Evaluates financial risk, cost of capital, and any risk tradeoffs with the new merger.…
Category: Finance
The firm’s weighted average cost of capital
The capital structure for HCA is provided below. If the firm has a 5% after tax cost of debt, 9% commerical loan rate,
a 11.5% cost of preferred stock, an 15% cost of common stock, and given the dollar amounts provided below, what is the firm’s weighted average cost of capital (WACC)?
Capital Structure (in K's) Weights Individual Costs Weighted Costs
Bonds $1,083 5.00%
Commercial Loans $2,845 9.00%
Preferred Stock $268 11.50%
Common Stock $3,681 15.00% The firm’s weighted average cost of capital
The capital structure for HCA is provided below. If the firm has a 5% after tax cost of debt, 9% commerical loan rate,
a 11.5% cost of preferred stock, an 15% cost of common stock, and given the dollar amounts provided below, what is the firm’s weighted average cost of capital (WACC)?
Capital Structure (in K's) Weights Individual Costs Weighted Costs
Bonds $1,083 5.00%
Commercial Loans $2,845 9.00%
Preferred Stock $268 11.50%
Common Stock $3,681 15.00% Cost of equity (fund capital)
St. David’s Hospital in Austin, Texas has a target capital structure of 35 percent debt and 65 percent equity. Its cost of equity (fund capital) estimate is 13.5 percent and its cost of debt is 7 percent. If it has a 35% tax rate, what is the hospital’s corporate cost of capital?
Cost of equity (fund capital)
St. David’s Hospital in Austin, Texas has a target capital structure of 35 percent debt and 65 percent equity. Its cost of equity (fund capital) estimate is 13.5 percent and its cost of debt is 7 percent. If it has a 35% tax rate, what is the hospital’s corporate cost of capital?
The stock of Eagle Healthcare
Your personal financial advisor is trying to get you to buy the stock of Eagle Healthcare, a local drug and alcohol rehabilitation company. The stock has a current market price of $35, its last dividend (D0) was $2.50, and the company’s earnings and dividends are expected to increase at a constant growth rate of 8 percent. The required return on this stock is 15 percent. From a strict valuation standpoint, should you buy the stock?
Include the solution for deciding to buy or not buy the stock.
The stock of Eagle Healthcare
Your personal financial advisor is trying to get you to buy the stock of Eagle Healthcare, a local drug and alcohol rehabilitation company. The stock has a current market price of $35, its last dividend (D0) was $2.50, and the company’s earnings and dividends are expected to increase at a constant growth rate of 8 percent. The required return on this stock is 15 percent. From a strict valuation standpoint, should you buy the stock?
Include the solution for deciding to buy or not buy the stock.
Firm’s expected stock price in five years
Liberty Rehab Corporation has a current stock price of $56, and its last dividend (D0) was $5.00. In view of the company’s strong financial position, its required rate of return is 10 percent. If Liberty’s dividends are expected to grow at a constant rate in the future, what is the firm’s expected stock price in five years?
Constant Growth Rate:
Expected Stock Price in 5 Years:
Firm’s expected stock price in five years
Liberty Rehab Corporation has a current stock price of $56, and its last dividend (D0) was $5.00. In view of the company’s strong financial position, its required rate of return is 10 percent. If Liberty’s dividends are expected to grow at a constant rate in the future, what is the firm’s expected stock price in five years?
Constant Growth Rate:
Expected Stock Price in 5 Years:
The yield to maturity on the issue
United Health Group has bonds outstanding that have four years remaining to maturity,
a coupon interest rate of 8 percent paid annually, and a $1,000 par value.
a. What is the yield to maturity on the issue if the current market price is $829?
b. If the current market price is $1,104?
c. Would you be willing to buy one of these bonds for $829 if you required a 12 percent rate of return on the issue? Explain your answer.