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Food World, a regional discount grocery chain is considering the purchase of a smaller, regional grocery chain -- Tres Amigos Foods, a grocery store chain
Food World, a regional discount grocery chain is considering the purchase of a smaller, regional grocery chain -- Tres Amigos Foods, a grocery store chain that primarily serves the Spanish community in the southwest United States. Tres Amigos would be run as a wholly-owned subsidiary and would continue to be branded as Tres Amigos. The current cash flow from assets for Tres Amigos is $5.1 million and is expected to grow at a rate of 6% per year for the next five (5) years before leveling off to a 3% growth rate for the indefinite future. The cost of capital for Food World and Tres Amigos are 9% and 10%, respectively. Tres Amigos currently has 2.5 million shares of stock outstanding and $28 million in net debt. What is the maximum price per share Food World should pay for Tres Amigos
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