Trax Industries is considering the purchase of Duke Manufacturing. Duke is currently a supplier for Trax, and the acquisition would allow Trax to better control its material supply. The current cash flow from assets for Duke is $8 million. The cash flows are expected to grow at 6 percent for the next five years before levelling off to 4 percent for the indefinite future. The weighted average cost of capital used for the valuation of Duke is 9 percent. Duke currently has 3 million shares of stock outstanding and $22 million in debt outstanding. What is the maximum price per share Trax should pay for Duke? O A. $53.181 O B. $63.181 OC. $60.51 O D. $55.85
Trax Industries is considering the purchase of Duke Manufacturing. Duke is currently a supplier for Trax, and the acquisition would allow Trax to better control its material supply. The current cash flow from assets for Duke is $8 million. The cash flows are expected to grow at 6 percent for the next five years before levelling off to 4 percent for the indefinite future. The weighted average cost of capital used for the valuation of Duke is 9 percent. Duke currently has 3 million shares of stock outstanding and $22 million in debt outstanding. What is the maximum price per share Trax should pay for Duke? O A. $53.181 O B. $63.181 OC. $60.51 O D. $55.85
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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Transcribed Image Text:Trax Industries is considering the purchase of Duke Manufacturing. Duke is currently a supplier for Trax, and the acquisition would allow Trax to better control its material
supply. The current cash flow from assets for Duke is $8 million. The cash flows are expected to grow at 6 percent for the next five years before levelling off to 4 percent for the
indefinite future. The weighted average cost of capital used for the valuation of Duke is 9 percent. Duke currently has 3 million shares of stock outstanding and $22 million in
debt outstanding. What is the maximum price per share Trax should pay for Duke?
A. $53.181
B. $63.181
O C. $60.51
D. $55.85
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