Reference no: EM132760803

Two ambitious business graduates, Boris and Isabelle, are considering purchasing Premier Pizza, a frozen pizza manulacturer Forecasted annual sales for the coming year are $10.2 million, with operating costs equal to 74% of sales, depreciation is 3% of sales and required annual investment in equipment is 5% of sales. Sales, costs, and investments are expected to grow 5% in perpetuity On the basis of their analysis of the industry. Botis and Isabelle anticipate financing their company with 26% debf The required rate of return on the debt will be 7% and the required rate of return on the equity will he 15% Premicr Pizza's corporale tax rate is 35%. The risk-Iree interest rate is 3% and the market risk premium is 8.

Problem 1: What is thie maximum price Boris atid Isabelle should be willing to pay for Premier Pizza (Round your answer to 2 decimal places) Haximum price millinn

Problem 2: A national grocery chain. Fresh Foods, is also considering making an offer tor Premier Pizza The levered equity beta of the grocery chain is 0.8. Its cost of debt is 66. il is 37% debt financed, and it has d 35% tax rate What is the maximum pric that Fresti Foods should be willing to pay lor Premier Pizza? Assume that Fresh Fouds's forecast for Premier's cash flows is the same as Boris and isabele's