Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You own a small fast-food company, which generates a free cash flow of $5 million per year in perpetuity. The cost of capital for your

image text in transcribed

You own a small fast-food company, which generates a free cash flow of $5 million per year in perpetuity. The cost of capital for your company is estimated to be 10%. Brisco, a listed company, just informed you that it would like to buy your company. According to Brisco's offer, you will receive 1.5 million shares of Brisco, with each share currently trading at $3.2 per share. You can sell the shares of Brisco that you will receive in the market at any time. In the offer, Brisco also agrees that after one year, it will buy the shares back from you for $3.7 per share if you desire. Suppose the current one-year risk-free rate is 5%, the volatility of Brisco stock is 20%, and Brisco does not pay dividends. The value of this offer is closest to: (6 marks) Select one: a. $5.31 million b. $4.60 million c. $5.49 million d. $4.77 million

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance And Control For Construction

Authors: Chris March

1st Edition

0415371155, 978-0415371155

More Books

Students also viewed these Finance questions

Question

7. Define cultural space.

Answered: 1 week ago

Question

8. Describe how cultural spaces are formed.

Answered: 1 week ago