Orca Industries is considering the purchase of Shark Manufacturing. Shark is currently asupplier for Orca and the acquisition would allow Orca to better control its materialsupply. The current cash flow from assets for Shark is $7 million. The cash flows areexpected to grow at 8 percent for the next five years before leveling off to 5 percent forthe indefinite future. The costs of capital for Orca and Shark are 12 percent and 10percent, respectively. Shark currently has 3 million shares of stock outstanding and $25million in debt outstanding.What is the maximum price per share Orca should pay for Shark? (Do not roundintermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)Price per share

Calculation of future cashflows of SharkTerminal value year 5 = Value of firm at end of high growth…

Answered: Orca Industries is considering the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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QUESTION THREE A. What is meant by asymmetric information? B. Z Ltd has a K1million bond issue outstanding. If deposits earn 8 percent per annum, calculate the amount that can be deposited annually to a sinking fund in order to accumulate enough money to retire the entire K1million issue at the end of 20 years. C. Mutale has just borrowed an amount of K5,000 to pay his school fees. The loan is to be repaid in equal installments at the end of each of the next 3 years and the interest rate is 15%. Mutale is interested to know the repayment implications on this loan in terms of the total amount that will be paid on the loan and the breakdown between the principal amount and interest payments over the 3 years. Draw out a table that will help Mutale understand the loan implications. D. Mubita is contemplating on investing in Stocks A and B with the following probability distributions of possible future returns: Probability (Pi) 0.1 0.2 0.4 0.2 0.1 Page 2 Stock A (%) 15 0 5 10 25 Stock B (%)…
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