Bailey Luxury RV, Inc., a publicly traded firm , is considering the acquisition of Little Angel Clothing Company ( LACE ; for a price of $ 18 per share . LACE is a private company that Specializes in manufacturing clothing , shoes and accessories for beauty pageant contestants* The RV' business is slow , and Bailey LUXURY's CFO believes that the acquisition of LACE will* help to improve overall profitability and provide much needed cash flow . Bailey's has 500, 000 Shares of common stock outstanding , currently trading at 59.75 per share . The book value of the common stock is $5 per share . Bailey also has bonds with a market value of $3.500,000 and a yield to maturity of 3. 4%/} . Based on current market valuations , Bailey is currently achieving its target debt to equity ratio . Bailey's Equity beta is O. B.O . _ACC is a private firm that was founded ten years ago by four sisters , who have a combined 100 years of experience in the beauty pageant business as competitors , judges , and coaches . LACE'S cost of goods sold | COGS ) is expected to be 38%' of sales revenues , and selling , general and administrative ( SGEA ) expenses are expected to be 12%' of revenues . These estimates are in line with the firm 's historical performance , which is expected to continue for the foreseeable future . The firm is 100%6 Equity financed and has 100,000 shares of common stock outstanding . It's Equity beta is estimated to be 1 .353 . LACE has experienced rapid growth over the last ten years . However , your analysis of industry structure suggests that competition in the beauty pageant clothing and accessories market is likely to increase in the next few years . Thus , you forecast that the perpetual growth rate for free cash flows after five years will be a modest 1. 5%/ } per year . "Your team has been hired as consultants to Bailey Luxury RY to Evaluate the proposed acquisition of LACE . Tables 1 and 2 below contain additional data that you have collected during your research . The corporate tax rate is 40% for all firms . Table 1 Forecast Data for Little Angel Clothing Company* Year ! Year ? Year ? Year & Year 5 Sales Revenue 2010, 000 3.35, 000 $75,000 4 10, 000 575 , 000 Investment in CapE * and MIC 18.000 25, 000 40,000 50,000 65, 000 Depreciation " 15,000 30,000 40, 000 52.0100 60, 000 " The depreciation numbers listed above are not included in LOGE percentage Estimates . Table 2 Market Data Current yield to maturity' on 30 year treasury bonds 2.50%' Estimate of Expected average return on the SEP 500 over the next 30 years 7.50%'I'] What is the value of Little Angel Clothing Company" ?" Assume that Your valuation is performed today at Year D, and that the revenues shawn in Table I are end- of- year year forecasts . 21 Suppose Bailey Luxury RV' offers to pay SIB for each of LACE's outstanding shares . If the market fully impounds this information , what will be the new price per share of Bailey' & common stock?"] What is the most that Bailey should pay for L ALL ! Why
