What is the maximum price per share mcdonalds should pay

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Reference no: EM132658992

McDonalds is considering the purchase of Yukon Commercial Bakeries. Yukon bakes hamburger buns and bagels used by several fast food restaurant chains, including McDonalds. McDonalds sees the purchase as a way to maintain a consistent supply of bakery products to its Canadian operators and franchisees. The current free cash flow for Yukon is $28.9 million. The cash flows are expected to grow at 7 percent for the next five years before leveling off to 4 percent for the indefinite future. The cost of capital for McDonalds and Yukon is 11 percent and 9 percent, respectively. Yukon is publicly traded and has 18 million shares of stock outstanding and $142 million in debt outstanding. Yukon also has $28 million in cash and cash equivalents.

Problem 1: What is the maximum price per share McDonalds should pay for Yukon Commercial Bakeries?

[A] $31.71

[B] $30.03

[C] $34.23

[D] $20.58

[E] $37.92

Reference no: EM132658992

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