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Riptide Inc., a swimwear company, is considering acquiring a string of Beachtime Inc., a retail store chain. Beachtime is expected to generate $ 30 million
Riptide Inc., a swimwear company, is considering acquiring a string of Beachtime Inc., a retail store chain. Beachtime is expected to generate $ 30 million in after-tax cash flows next year, prior to debt payments, growing 2% a year in perpetuity. You are given the cost of equity and capital for both companies individually and the combined company:
Cost of Equity | Cost of Capital | |
Riptide | 8% | 7% |
Beachtime | 12% | 11% |
Combined | 10% | 9% |
Assuming that there is no synergy, what is the most that Riptide can pay for Beachtime?
a.
111.11
b.
333.33
c.
444.44
d.
222.22
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