RiverRocks (whose WACC is 11.7%) is considering an acquisition of Raft Adventures (whose WACC is 15.6%). Whatis the appropriate discount rate for RiverRocks to use to evaluate the acquisition? Why?The appropriate discount rate for River Rocks to use to evaluate the acquisition is % (Round to onedecimal place.)Why? (Select the best choice below.)OA. Raft Adventures' WACC is the most appropriate discount rate to account for the risk of Raft Adventures cashflows.B. The risk-free rate will best account for the risk of Raft Adventures' cash flows since RiverRocks will pay cashfor the transaction.OC. RiverRocks' WACC is the most appropriate discount rate to account for the risk of Raft Adventures' cashflows.OD. An average WACC from RiverRocks and Raft Adventures will best account for the risk of Raft Adventurescash flows.

The appropriate discount rate to evaluate an acquisition is the weighted average cost of capital…

Answered: RiverRocks (whose WACC is 11.7%) is…

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter5: Business Deductions

Section: Chapter Questions

Problem 49P

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RiverRocks (whose WACC is 11.8%) is considering an acquisition of Raft Adventures (whose WACC is 15.2%). The appropriate discount rate for RiverRocks to use to evaluate the acquisition is ___ %? What is the appropriate discount rate for RiverRocks to use to evaluate the acquisition? Why? A. Raft Adventures' WACC is the most appropriate discount rate to account for the risk of Raft Adventures' cash flows. B. RiverRocks' WACC is the most appropriate discount rate to account for the risk of Raft Adventures' cash flows. C. An average WACC from RiverRocks and Raft Adventures will best account for the risk of Raft Adventures' cash flows. D. The risk-free rate will best account for the risk of Raft Adventures' cash flows since RiverRocks will pay cash for the transaction.
If the management of Beauty Co. demands a price of P28,000,000, should the management of Gwapo Co. pursue the acquisition? yes no
Choose the correct. When negotiating a business acquisition, buyers sometimes agree to pay extra amounts to sellers in the future if performance metrics are achieved over specified time horizons. How should buyers account for such contingent consideration in recording an acquisition?a. The amount ultimately paid under the contingent consideration agreement is added to goodwill when and if the performance metrics are met.b. The fair value of the contingent consideration is expensed immediately at acquisition date.c. The fair value of the contingent consideration is included in the overall fair value of the consideration transferred, and a liability or additional owners’ equity is recognized.d. The fair value of the contingent consideration is recorded as a reduction of the otherwise determinable fair value of the acquired firm.
When negotiating a business acquisition, buyers sometimes agree to pay extra amounts to sellers in the future if performance metrics are achieved over specified time horizons. How should buyers account for such contingent consideration in recording an acquisition?a. The amount ultimately paid under the contingent consideration agreement is added to goodwill when and if the performance metrics are met.b. The fair value of the contingent consideration is expensed immediately at acquisition date.c. The fair value of the contingent consideration is included in the overall fair value of the consideration transferred, and a liability or additional owners’ equity is recognized.d. The fair value of the contingent consideration is recorded as a reduction of the otherwise determinable fair value of the acquired firm.
Should Gee Co. proceed with the acquisition of Bea Co.? yes or no? show your solution. The management team of Gee Co. is deciding to acquire Bea Co. an entity that sells a product that compliments its own product. The management of Bea Co. demands a price of P18,000,000 for it to agree with the acquisition by Gee Co. Relevant data gathered for annual operations are as follows: Gee Co. Вea Co. Combined Average Net Income Depreciation Expense 3,500,000 2,500,000 6,500,000 250,000 150,000 350,000 WACC 12% 15% 12.50%
Island, Inc. made a basket purchase involving four assets. Their market values were A: $56,000; B: $42,000 C: $44,000; and D: $58,000. The price Island paid for the four assets was $145,000. To the nearest dollar, what final price will be recorded for asset D? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.) ... O A. $3,000 O B. $31,900 O C. $42,050 O D. $58.000
What is the NPV, IRR, and Payback period for the acquisition and what should Atlantic do?
The trial balance for the Dark Horse Company follows: Description Cash Inventory Property, plant, and equipment - Net Current liabilities Common stock - No par Retained earnings Totals Debit Credit $ 30,000 100,000 370,000 $ 50,000 150,000 300,000 $ 500,000 $ 500,000 MPL, Inc. offers to acquire Dark Horse. The additional information is given below: Purchase price (Requirement 1 assumption) (Requirement 2 assumption) Purchase price Fair market value of the inventory The plant assets were undervalued by $ 650,000 $ 250,000 $ 180,000 ՄԴ $ 50,000
Pierogi Corp is deciding on buying a property for expanding its operation. The acquisition cannotbe afforded with the company’s current financial situation and a highly onerous bank loan may berequired in order to make the purchase possible. Meanwhile, the property proposed anotheroption that will still allow the company the use of the property. The owner is offering the propertyfor lease with a purchase option. In your opinion, which would be a better option?
Miss Houri, Inc. is considering to buy project Holly from the Wood, Inc. WACC should be computed from the pot of view of Miss Houri corporation O Project Holly as would be managed by Miss Houri Project Holly as is managed by Wood corporation Project Holly as a stand-alone project
Reck Company is considering the acquisition of Clock Inc. To assess the amount it might be willing to pay, Reck makes the following computations and assumptions.A. Clock, Inc. has identifiable assets with a total fair value of OMR 9,000,000 and liabilities of OMR 6,500,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 30% higher than book value, and land with a fair value 50% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Clock Inc.B. Clock Inc.'s pretax incomes for the years 2018 through 2020 were OMR 580,000, OMR 420,000, and OMR 350,000, respectively. Reck believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future. However, it may need to consider adjustments for the following items included in pretax earnings:Depreciation on Buildings (each year) 380,000Depreciation on Equipment…
Carla Vista Company is considering the acquisition of Kingbird, Inc. To assess the amount it might be willing to pay, Carla Vista makes the following computations and assumptions. A. B. C. Kingbird, Inc. has identifiable assets with a total fair value of $6,016,000 and liabilities of $3,719,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 25% higher than book value, and land with a fair value 50% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Kingbird, Inc. Kingbird, Inc.'s pretax incomes for the years 2020 through 2022 were $472,100, $573,300, and $372,700, respectively. Carla Vista believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future. However, it may need to consider adjustments for the following items included in pretax earnings: Depreciation on Buildings (each year) Depreciation on Equipment…

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