Melissas Kitchen is considering acquiring Takeshis Takeout Corp., a small local restaurant chain. Expected net cash flows from the acquisition for the first four years of the post-merger period are:

Year 1 $350,000

Year 2 $400,000

Year 3 $475,000

Year 4 $550,000

After four years, the net cash flows are expected to grow at a constant rate of 3 percent per year. If we know the following information, what is the most Melissas Kitchen Should pay for Takeshis Takeout?

Melissas Kitchen

Borrowing costs 5% above the current long-term Treasury Bond rate

10-year T-Bond Rate 2/8/23 = 3.64%

Beta 2.4

Debt $4 million

Stock 500,000 shares outstanding - $20 per share on 2/8/23

Tax Rate 21 percent