Consider the Good Food Corporation, a public company headquartered in Barstow, California, that is

currently a leading global food service retailer. It operates about $10,000$ restaurants in $100$ countries.

Good Food serves a value$-$based menu focused on hamburgers and French fries. The company has

$$4$ billion in market valued debt and $$2$ billion in market valued common stock. Its tax rate is $20$

percent. Good Food has estimated its cost of debt as $5$ percent and its cost of equity as $10$ percent.

Good Food is seeking to grow by acquisition and the investment bankers of Good Food have identified a

potential acquisition candidate, Happy Meals, Inc. Happy Meals is currently a private firm with no

publicly tradable common stock but has the same product mix as Good Food and is a direct

competitor to Good Food in many markets. It operates about $4,000$ restaurants mostly in North

America and Europe.

Happy Meals has $$1,318\mathrm{.}8$ million of debt outstanding with its market value the same as the book value. It

has $12\mathrm{.}5$ million shares outstanding. Since Happy Meals is a private firm, we have no stock market

price to rely on for our valuation. Happy Meals expects its EBIT to grow $10$ percent a year for the next

five years. Increases in net working capital and capital spending are both expected to be $24$ percent

of EBIT. Depreciation will be $8$ percent of EBIT. The perpetual growth rate in cash flow after five years

is estimated to be $2$ percent.

If Good Food acquires Happy Meals, EBIT and depreciation of Happy Meals in the next year are expected

as $$150$ millions and $$12$ millions.

At what price should Good Food acquire Happy Meals?