Question 6 (10 marks) CSMAR is a leading financial data provider and aims to acquire its direct competitor, Wind Data. T

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Question 6 (10 marks)
CSMAR is a leading financial data provider and aims to
acquire its direct competitor, Wind Data. The CSMAR estimate Wind
Data has sales of $40 million and after-tax income of $4 million
this year. Wind Data has the debt to equity ratio is 20%, and the
after-tax income is expected to grow at 15% per annual for the next
3 years and 5% per annual thereafter. Capital expenditures are
expected to grow in line with depreciation and working capital
requirements are minimal. The average beta of publicly traded
companies in the financial data provider industry is 2 and the
average debt/equity ratio is 50%. The Wind Data is managed very
conservatively and does not intend to issue new debt and change its
D/E ratio through the foreseeable future. It has no preferred stock
as well. The current risk free rate is 5% and the tax rate is 30%.
The market return is believed to be 11% on average for the next
three years. Reflecting the slower growth rate in the fourth
year and beyond, the firm’s discount rate is expected to decline to
the industry average cost of equity of 10.4%. Estimate the value of
Wind Data’s equity.
Show all your workings. No Use of
Excel.