Company Merk :The company that will acquire company Pond. Merk would acquire Pond and value Pond using the data below.

Company Pond Financial Data: Pond Debt ratio 50%

Pond Tax rate 35%

Pond Beta1.50

Risk free rate 8%

Market risk premium 4%

Pond shares outstanding 120,000

PondCost of Goods Sold 65% of sales

Pond Terminal growth rate 7% after year 2018

(Dollars in thousands)

2015 2016 2017 2018

Sales $450.0 $518.0 $555.0 $600.0

Cost of Goods Sold (65%) 292.5

Gross Profit 157.5

Selling/admin. costs 45.0 53 60 68

EBIT 112.5

Interest 18.0 21 24 27

EBT 94.5

Taxes (35%) 33.1

Net Income/Cash Flow $61.4

Answer the following questions:

What discount rate should be used to value Pond?

What is the terminal value of Pond? Assume that the terminal growth rate is 7%

What is the total value of Pond?

What should be the maximum price per share Merk should offer Pond?