Pizza Palace (PP), is considering purchasing a smaller chain, Western Mountain Pizza. PP'sanalysts expect the merger to result in incremental net cash flows as follows: Y1=$1,500,000,Y2= $2,000,000, Y3 = $3,000,000, Y4 =$5,000,000. In addition, Western's Y4 cash flows areexpected to grow at a constant rate of 5% after Y4. Western's post-merger beta is expectedto be 1.5 and its tax rate would be 40%. The risk free rate is presently 5% and the market riskpremium is 4%. What is the Terminal value that goes into the calculation of the value ofWestern to Pizza Palace?O a. 87,500,000.00Ob. 2,193,574.14O c. 60,932,615.11O d. 66,100,785.47

Data given: Cash flow Y4 =$5000,000 Growth rate(after Y4)=5% Post merger: Beta=1.5 Risk free…

Answered: Pizza Palace (PP), is considering…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Pizza Place, a national pizza chain, is considering purchasing a smallerchain, Western Mountain Pizza. Pizza Place’s analysts project that the merger will resultin incremental cash flows of $1.5 million in Year 1, $2 million in Year 2, $3 million inYear 3, and $5 million in Year 4. In addition, Western’s Year 4 cash flows are expectedto grow at a constant rate of 5% after Year 4. Assume that all cash flows occur at theend of the year. The acquisition will be made immediately if it is undertaken. Western’spost-merger beta is estimated to be 1.5, and its post-merger tax rate would be 40%. Therisk-free rate is 6%, and the market risk premium is 4%. What is the value of WesternMountain Pizza to Pizza Place?
Cupp Cake is considering purchasing a competitor, ChocoMallow. Projected cash flows as a result of the merger are: Year1, P1,450,000; Year2, P1,750,000; Year3, P2,000,000; Year4, P2,500,000. In addition, Cupcake2's year4 cashflows are expected to grow at a constant rate of 6% after year 4. Cupcake's post merger beta is estimated to be 1.2 and its post-merger tax rate is 40%. The risk-free rate is 8% and the market risk premium is 4%. 1. What is the maximum bid price that Cup Cake can offer in the acquisition 2. How much is the net advantage/disadvantage to Cup Cake if it acquires ChocoMallow's 10,000,000 shares at the current market price of P9
Pizza Place, a national pizza chain is considering purchasing a smaller chain, Western Mountain Pizza. Projected cash flows 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 cashflows 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%. What is the total value of Western Mountain Pizza to Pizza Place? Show your solution.
Pizza Place, a national pizza chain is considering purchasing a smaller chain, Western Mountain Pizza. Projected cash flows 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 cashflows 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%. How much is the projected terminal cashflow (cashflow after year 4 to infinity) from Western Mountain Pizza. Show your solution.
Pizza Place, a national pizza chain is considering purchasing a smaller chain, Western Mountain Pizza. Projected cash flows 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 cashflows 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%. What is the maximum bid price per share of Pizza Place for Western Mountain Pizza? Show your solution
Cake World2 is considering purchasing a competitor, Cupcake2. Projected cash flows as a result of the merger are: Year1, P1,450,000; Year2, P1,750,000; Year3, P2,000,000; Year4, P2,500,000. In addition, Cupcake2's year4 cashflows are expected to grow at a constant rate of 6% after year 4. Cupcake's post merger beta is estimated to be 1.2 and its post-merger tax rate is 40%. The risk-free rate is 8% and the market risk premium is 4%. How much is the net advantage/disadvantage to Cake World2 if it acquires Cupcake2's 10,000,000 shares at the current market price of P9.
Pizza Place, a national pizza chain is considering purchasing a smaller chain, Western Mountain Pizza. Projected cash flows 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 cashflows 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%. 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? Show your solution.
Pizza Place, a national pizza chain is considering purchasing a smaller chain, Western Mountain Pizza. Projected cash flows as a result of the merger are: Year1, $1,500,000; Year2, $2,000,000; Year3, $3,000,000; Year4, $5,000,000. In addition, Western's year4 cashflows 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: How much is the projected terminal cashflow (cashflow after year 4 to infinity) from Western Mountain Pizza?
Pizza Place, a national pizza chain is considering purchasing a smaller chain, Western Mountain Pizza. Projected cash flows as a result of the merger are: Year1, $1,500,000; Year2, $2,000,000; Year3, $3,000,000; Year4, $5,000,000. In addition, Western's year4 cashflows 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%. REQUIRED: 1. What is the maximum bid price per share of Pizza Place for Western Mountain Pizza? 2. If Western Mountain Pizza has 5,000,000 outstanding shares and are currently selling at $13. How much is the minimum acceptable price (in total) for Western Mountain Pizza?
Cuppy World is considering purchasing a competitor, Cupcake. Projected cash flows as a result of the merger are: Year 1, P1,450,000; Year 2, P1,750,000; Year 3, P2,000,000; Year 4, P2,500,000. In addition, Cupcake's year4 cash flows are expected to grow at a constant rate of 6% after year 4. Cupcake's post-merger beta is estimated to be 1.2 and its post-merger tax rate is 40%. The risk-free rate is 8% and the market risk premium is 4%. 1. Compute for the maximum bid price that Cuppy World can offer in the acquisition. 2. How much is the net advantage/disadvantage to Cuppy World if it acquires Cupcake's 10,000,000 shares at the current market price of P9?
Cake World is considering purchasing a competitor, Cupcake. Projected cash flows as a result of the merger are: Year1, P1,450,000; Year2, P1,750,000; Year3, P2,000,000; Year4, P2,500,000. In addition, Cupcake's year4 cashflows are expected to grow at a constant rate of 6% after year 4. Cupcake's post-merger beta is estimated to be 1.2 and its post-merger tax rate is 40%. The risk-free rate is 8% and the market risk premium is 4%. Compute for the maximum bid price that Cake World can offer in the acquisition
CUPPY is considering purchasing a competitor, Cupcake2. Projected cash flows as a result of the merger are: Year1, P1,450,000; Year2, P1,750,000; Year3, P2,000,000; Year4, P2,500,000. In addition, Cupcake2's year4 cash flows are expected to grow at a constant rate of 6% after year 4. Cupcake's post-merger beta is estimated to be 1.2 and its post-merger tax rate is 40%. The risk-free rate is 8% and the market risk premium is 4%. How much is the net advantage/disadvantage to CUPPY2 if it acquires Cupcake2's 10,000,000 shares at the current market price of P9

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