What is the maximum price ocp

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Reference no: EM133112098

Omni Consumer Products (OCP) is a manufacturer of circuitry and electronic components. OCP is contemplating an acquisition of Banana Computing Company. Banana Computing Company is a manufacturer of consumer electronics.

An acquisition is expected to reduce overhead costs, improve distribution logistics and improve sales volumes overall. OCP estimates that their free cash flow from Banana including these improvements (synergies) will be $5 million, $6 million and $7 million for the next 3 years respectively. Free cash flows will grow at 6% annually thereafter. Banana's tax rate is 25% and its WACC is 12%.

a) What is the maximum price OCP would be willing to pay for Banana Computing Company?

b) Aside from the expected benefits of merger described above, name three other potential benefits, i.e. rationale that may support the idea of an acquisition bid.

Reference no: EM133112098

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