Orca Industries is considering the purchase of Shark Manufacturing. Shark is currently a supplier for Orca and the acquisition would allow Orca tobetter control its material supply. The current cash flow from assets for Shark is $8.4 million. The cash flows are expected to grow at 8 percent forthe next five years before leveling off to 5 percent for the indefinite future. The costs of capital for Orca and Shark are 12 percent and 10 percent,respectively. Shark currently has 3 million shares of stock outstanding and $25 million in debt outstanding. What is the maximum price per shareOrca should pay for Shark? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Free cash flow for Shark= $8,400,000Growth rate for five years= 8%Growth rate for perpetuity= 6%Cost…

Answered: Orca Industries is considering the…

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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