For Q11 to Q13, please refer to the following problem:

Given the following information on a private restaurantBest -in -Town(BIT), operating in an upscale shopping mall:

typical simplified balance sheet for the restaurant industry:

Total assets

$250 MM

Total liabilities

$ 150 MM

Total equity

$ 100 MM

Also, you have gathered the following information:

• market(BIT) =1.60
• (BIT, industry) = 0.85
• average after-tax cost of borrowing for the restaurant industry = 7%
• one month t-bill yield = 2%
• market risk premium = 6%

Q11. What is the equity cost of B-I-T?

Select one:

a.13.3%

b.12.7%

c.11.7%

d.12.3%

e.13.7%

Q12. What is the WACC you would use to carry out this DCF analysis?

Select one:

a.8.7%

b.9.7%

c.9.3%

d.10.5%

e.9.5%

Q13. Assume further that you expect that B-I-T would only operate for 12 years and the future becomes unknown. You are also given that this acquisition will result in net annual cash flow of $ 800,000 what would be the maximum offer you would make?

Select one:

a.$ 5.60 MM

b.$ 5.10 MM

c.$ 4.90 MM

d.$ 4.70 MM

e.none of the above