Financial Questions

1. Figure
9.1

In March of 2011, Macklemore Corp. considered an acquisition of Blue
Scholar Learning, Inc. (BSL), a privately-held educational software firm. As a
first step in deciding what price to bid for BSL, Macklemore’s CFO, Ryan Lewis,
has prepared a five-year financial projection for the company assuming the
acquisition takes place. Use this projection and BSL’s 2010 actual financial
figures to answer the questions below.

1. What is BSL’s free cash flow (in $ millions) for
2011?
A. – $938
B. – $792
C. – $7
D. $122
E. $1,091
F. None of the above.

7. Estimate the present value of BSL’s free cash flow
(in $ millions) for the years 2011 – 2015. Macklemore’s WACC is 8.0 percent.
BSL’s WACC is 11.5 percent, and the average of the two companies’ WACCs,
weighted by sales, is 8.2 percent.
A. – $1.29
B. $628.24
C. $720.58
D. $726.68
E. $743.94
F. None of the above.

11 Estimate BSL’s value (in $ millions) at the end of
2010 assuming it is worth the book value of its assets at the end of 2015.
Macklemore’s WACC is 8.0 percent. BSL’s WACC is 11.5 percent, and the average
of the two companies’ WACCs, weighted by sales, is 8.2 percent.
A. $628.24
B. $3,669.01
C. $4,297.25
D. $4,412.94
E. $4,984.28
F. $6,951.24
G. None of the above.

The following
table presents forecasted financial and other information for Scott’s
Miracle-Gro Co.:

What is an appropriate estimate of Scott’s terminal value of equity as of the
end of 2014?
A. $225 million
B. $3,833.0 million
C. $4,207.5 million
D. $4,365.0 million
E. $6,788.1 million
F. None of the above.

Key facts and assumptions concerning FM Foods, Inc.
at December 31, 2011, appear below.

Estimate the appropriate weight of debt to be used when
calculating FM’s weighted average cost of capital.
A. 11.5%
B. 19.3%
C. 80.7%
D. 88.5%
E. 100.0%
F. None of the above.

Estimate FM’s weighted-average cost of capital.
A. 6.46%
B. 6.58%
C. 11.27%
D. 11.32%
E. 11.52%
F. None of the above.

Estimate FM’s after-tax cost of debt capital.
A. 2.21%
B. 4.10%
C. 4.55%
D. 6.30%
E. 7.00%
F. None of the above.

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