What price per share should hastings bid for each share

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Hastings HMO is interested in acquiring Vandell, a smaller HMO in its service area. Vandell has 1 million shares outstanding and a target capital structure consisting of 30 percent debt. Vandell's debt interest rate is 8 percent. Assume that the risk-free rate of interest is 5 percent and the market risk premium is 6 percent. Both Vandell and Hastings face a 40 percent tax rate.

Problem 1: Vandell's free operating cash flow is $2 million per year and is expected to grow at a constant rate of 5 percent a year; its beta is 1.4. If Vandell has $10.82 million in debt, what price per share should Hastings bid for each share of Vandell common stock?

Reference no: EM132718228

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