Company B is considering acquiring Company T and would like to come up with a price for the offer.

Company B has come up with the following forecast for T:

the most recent revenue was $10,000,000

revenue is expected to grow at 9% per year for 2 years, then growth becomes constant at 4% per year

total operating costs excluding depreciation is 70% of revenue

depreciation is estimated to be 5% of revenue

corporate tax rate is 40%

existing debt outstanding is $ 6,000,000, half of which is at a rate of 5% and the other half is at 7%. No part of this debt is to be redeemed and Company B is to assume all outstanding debt after the acquisition.

increase in annual working capital requirement is expected to be 5% of change in annual revenue

additional fixed assets per year is estimated to be 80 % of change in annual revenue

number of Co T shares outstanding is 500,000 prior to M&A

Q1

The NOPAT arithmetic sum total for year 1 to 3 operation is:

a. $ 5,270 MM

b. $ 4,740 MM

c. $ 5,535 MM

d. $ 4,480 MM

e. $ 5,530 MM

Q2

If Company B wants a minimum return of 12%, the maximum offer to Company T is:

a. $ 33.2/share

b.$ 34.2/share

c. $ 35.2/share

d. $ 31.2/share

e. $ 32.2/share

Q3

If $1,000,000 of the existing debt is to be repaid at the end of year 2, then the maximum offer to Company T will be:

a. $ 33.6/share

b. $ 35.2/share

c. $ 36.6/share

d. $ 37.0/share

e. $ 34.6/share