4.- Barcelona World, Inc., (BW) wants to expand its convenience stores into the Northeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Helios convenience stores.

BW currently has debt outstanding with a market value of $150 million and a YTM of 7 percent. The company's market capitalization is $400 million, and the required return on equity is 13 percent. Helio's currently has debt outstanding with a market value of $40 million. The EBIT for Helio's next year is projected to be $13 million. EBIT is expected to grow at 5 percent per year for the next five years before slowing to 1 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Helio's has 2 million shares outstanding and the tax rate for both companies is 31 %.

1. Based on these estimates, what is the maximum share price that BW should be willing to pay for Helio's? After examining your analysis, the CFO of BW is uncomfortable using the perpetual growth rate in cash flows. Instead, he feels that the value should be estimated using the EV/EBITDA multiple. If the appropriate EV/EBITDA multiple is 9, what is your new estimate of the maximum share price for the purchase?