Gekko Properties Is Considering Purchasing Teldar Properties

question 6

Multiple Choice

Gekko Properties is considering purchasing Teldar Properties.Gekko's analysts project that the merger will result in incremental after-tax cash flows of $2 million,$4 million,$5 million,and $10 million over the next four years.The horizon value of the firm's operations,as of Year 4,is expected to be $107 million.Assume all cash flows occur at the end of the year.The acquisition would be made immediately,if it is undertaken.Teldar's post-merger beta is estimated to be 2.0,and its post-merger tax rate would be 35%.The risk-free rate is 6%,and the market risk premium is 5.5%.What is the value of Teldar to Gekko Properties?

• A)$66,680,846
• B)$70,190,364
• C)$73,699,883
• D)$77,384,877
• E)$81,254,121

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