Acquire Inc., a large food conglomerate, has decided to expand its Mexican niche. Rather than start from scratch, Acquire decided it would be more cost effective to purchase an existing Mexican food outlet. Their research pinpointed Tasty Taco, a small Southeastern Mexican food chain with an established reputation for quality food. Tasty Taco currently purchases its raw food from one of Acquire Inc.s major competitors. Acquire Inc., in the past, attempted to obtain the Tasty Taco account by offering much lower food prices than Tasty Taco was paying under its current arrangement. Unfortunately, the mother-in-law of the president of Tasty Taco was on the board of the competitor food supplier. Not only would Acquire have an outlet for its overcapacity of Mexican food, but it could offer lower prices to Tasty Taco. Projected cash flows for Tasty Taco under its current arrangement are below (000s):

	2008	2009	2010
EBIT	$1,000	$1,450	$1,800
TAXES	300	435	540
NET	700	1,015	1,260
DEPREC.	200	250	300
NWC	50	50	0
INVESTMENT	300	350	300

Tasty Tacos projected 2010 cash flows are expected to grow at a long-run rate of 3% per year. You estimate that similar Mexican food chains have a cost of capital of approximately 18%. Acquire Inc.s cost of capital is 15%.

Tasty Taco would terminate its arrangement with its current supplier and purchase approximately $300,000, $440,000, and $540,000 of raw food from Acquire Inc. in 2008, 2009 and 2010, respectively, such amount growing at a 3% rate thereafter. Acquires net margin on the new sales would be 14%, and such sales could be easily met by its current and expected overcapacity. Tasty Taco would realize cost savings in the purchase of its raw foods, leading to a 10% increase in its projected EBIT. How much should Acquire Inc. pay for Tasty Taco?