Reference no: EM132473404

Capital structure consisting of 30% debt; its beta is 1.40 (given its target capital structure). Steves has $9.48 million in debt that trades at par and pays an 7.5% interest rate. Steve's free cash flow (FCF0) is $1 million per year and is expected to grow at a constant rate of 6% a year. Both Steve and Jacks pay a 35% combined federal and state tax rate. The risk-free rate of interest is 4% and the market risk premium is 6%.

Jacks Corporation estimates that if it acquires Steves Corporation, synergies will cause Steves free cash flows to be $2.5 million, $3.0 million, $3.5 million, and $3.53 million at Years 1 through 4, respectively, after which the free cash flows will grow at a constant 6% rate. Hastings plans to assume Steves $9.48 million in debt (which has an 7.5% interest rate) and raise additional debt financing at the time of the acquisition. Steves estimates that interest payments will be $1.6 million each year for Years 1, 2, and 3. After Year 3, a target capital structure of 30% debt will be maintained. Interest at Year 4 will be $1.417 million, after which the interest and the tax shield will grow at 6%.

What is the range of possible prices that Jacks could bid for each share of Steves common stock in an acquisition. Round your answers to the nearest cent. Do not round intermediate calculations.

What is the bid for each share should range between $ per share and $ per share.