Reference no: EM132935916
Problem - Pizza Place, a national pizza chain is considering purchasing a smaller chain, Western Mountain Pizza. Projected cash ?ows as a result of the merger are: Year1, P1,500,000; Year2, P2,000,000; Year3, P3,000,000; Year4, P5,000,000. In addition, Western's year4 cash?ows are expected to grow at a constant rate of 5% after year 4. Western's post merger beta is estimated to be 1.5 and its post-merger tax rate is 40%. The risk-free rate is 6% and the market risk premium is 4%.
1. How much is the projected terminal cashflow (cashflow after year 4 to infinity) from Western Mountain Pizza?
2. What is the total value of Western Mountain Pizza to Pizza Place?
3. What is the maximum bid price per share of Pizza Place for Western Mountain Pizza?
4. If Western Mountain Pizza has 5,000,000 outstanding shares and are currently selling at P13. How much is the minimum acceptable price (in total) for Western Mountain Pizza?
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: If Western Mountain Pizza has 5,000,000 outstanding shares and are currently selling at P13. How much is the minimum acceptable price
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