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Hi John,
Part b(iii) – in the computation of the total value which Westparley Co’s shareholders will gain from the acquisition of Matravers Co, it includes Less: Market value of debt(Mvd) of 6,500 million. Is this because the FCF and additional synergy computed are inclusive of debt(as they are not FCFE). Therefore, to calculate the value shareholders will gain, it is required to remove the mvd?
Yes 🙂 Discounting the free cash flows at the WACC gives the total MV (i.e. equity plus debt).
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Dear John,
I was have just gone through the the Westparley. I believe my question is quite similar to the first one asked in this thread.
When computing the value to Matravers Cos’s investors (total $20,875), I have noted that this includes a repayment of the $6,500 loan.
Is the loan repaid because the acquirer of a company is obliged to repay outstanding loans upon acquisition?
I am not too clear why the $6,500 loan repayment is included, can you kindly clarify when you have a moment.
Best regards,
HamzahIt doesn’t actually make any difference whether they repay the loan or whether they just take over the loan and then have the liability. One of the two must happen and so the overall amount it is costing them is the money paid to the shareholders together with the liability of the $6,500.
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