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Tango Company is planning to acquire Delta Company. The additional pre-tax income from the acquisition will be $300,000 in the first year, but it will
Tango Company is planning to acquire Delta Company. The additional pre-tax income from the acquisition will be $300,000 in the first year, but it will increase by 2% in future years. Because of diversification, the beta of Tango will decrease from 1.2 to 0.8. Currently the return on the market is 9% and the riskless rate is 4%. What is the maximum price that Tango should pay for Delta? The tax rate of Tango is 35%.
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