Reference no: EM132891330
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%.
Question 1: How much is the projected terminal cashflow (cashflow after year 4 to infinity) from Western Mountain Pizza?
Question 2: What is the total value of Western Mountain Pizza to Pizza Place?
Question 3: What is the maximum bid price per share of Pizza Place for Western Mountain Pizza?
Question 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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