Orca Industries is considering the purchase of Shark Manufacturing. Shark is currently a supplier for Orca and the acquisition would allow Orca tobetter control its material supply. The current cash flow from assets for Shark is $8.4 million. The cash flows are expected to grow at 8 percent forthe next five years before leveling off to 5 percent for the indefinite future. The costs of capital for Orca and Shark are 12 percent and 10 percent,respectively. Shark currently has 3 million shares of stock outstanding and $25 million in debt outstanding. What is the maximum price per shareOrca should pay for Shark? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Free cash flow for Shark= $8,400,000Growth rate for five years= 8%Growth rate for perpetuity= 6%Cost…

Answered: Orca Industries is considering the…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter26: Real Options

Section: Chapter Questions

Problem 3P: Wansley Lumber is considering the purchase of a paper company, which would require an initial...

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Orca Industries is considering the purchase of Shark Manufacturing. Shark is currently a supplier for Orca, and the acquisition would allow Orca to better control its material supply. The current cash flow from assets for Shark is $6.4 million. The cash flows are expected to grow at 9 percent for the next five years before leveling off to 6 percent for the indefinite future. The cost of capital for Orca and Shark is 13 percent and 11 percent, respectively. Shark currently has 3 million shares of stock outstanding and $25 million in debt outstanding. What is the maximum price per share Orca should pay for Shark? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16, Price per share $ 45 47
Orca Industries is considering the purchase of Shark Manufacturing. Shark is currently a supplier for Orca and the acquisition would allow Orca to better control its material supply. The current cash flow from assets for Shark is $6.8 million. The cash flows are expected to grow at 5 percent for the next five years before leveling off to 2 percent for the indefinite future. The costs of capital for Orca and Shark are 9 percent and 7 percent, respectively. Shark currently has 3 million shares of stock outstanding and $25 million in debt outstanding. What is the maximum price per share Orca should pay for Shark? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price per share
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Cameron Enterprises, Inc. is considering launching a new corporate project. The company will have to make Capital Investments, Working Capital investments, andgenerate Cash Flows from Operating the new project. The Equipment required for theproject will cost $3,000,000 today, will last for three years (the length of the project),and is estimated at the time of purchase to sell for $300,000 at the end of its life. Revenue is projected at $5.0M in the first year, $5.3M in the second year, $5.6M in the third year, $5.9 in the fourth year, $6.0M in the fifth year, and $5.0M in the final year. The investment in Net Working Capital is $300,000 initially, with the year-end values at 10% of that year's sales. The company uses Straight-Line depreciation and has a Tax Rate of 27%. The appropriate discount rate for the risks involved is 10%. Per your DCF analysis of the project, what is the cash flow from the change in net working capital in year six? Multiple Choice None of the…
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Orca Industries is considering the purchase of Shark Manufacturing. Shark is currently a supplier for Orca and the acquisition would allow Orca to better control its material supply. The current cash flow from assets for Shark is $7 million. The cash flows are expected to grow at 8 percent for the next five years before leveling off to 5 percent for the indefinite future. The costs of capital for Orca and Shark are 12 percent and 10 percent, respectively. Shark currently has 3 million shares of stock outstanding and $25 million in debt outstanding. What is the maximum price per share Orca should pay for Shark? 47.42 50.65 75.85 35.45
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Dayton Mechanical, Inc. is currently evaluating a potential new investment. The investment will be financed with 5700,000 of debt and $1,200,000 of equity. The (unleveraged) after-lax cash flows, the CATs, expected to result from the investment are $1 million per year for three years, after which time the project is expected to be sold off for a net after-tax $1 million in cash. The debt financing will take the form of three-year debt with interest payments of 12% per year on the remaining balance. Principal payments will be $100,000 in year 1, $200,000 in year 2, and $400,000 at the end of year 3. The net-benefit-to-leverage factor, T^, is 0.25 for this investment. The (unleveraged) required return for the project is 20%. What is the present value of the interest tax shield from the project?
Optimal corporation wants to expand their manufacturing facilities. They have two choices, first to expand the current site at a cost of $290,000 per year for two years to complete the expansion, or to sell their current site for $1.3 million and purchase a new larger facility at a cost of $900,000 in the industrial zone. If the annual interest rate is 8%, evaluate the cash flows for the two options described above and decide which is the most financially beneficial to the corporation? [Note: you are supposed to show every step of your calculation and interpret the result.] If Optimal corporation wants to factor inflation in their calculations, what is the equivalent nominal interest rate if expected inflation rate is 4% in the coming years? Critically discuss the significance of including the factor of inflation in corporate finance calculations [Note: remember to use Harvard referencing to reference your sources]
Optimal corporation wants to expand their manufacturing facilities. They have two choices, first to expand the current site at a cost of $290,000 per year for two years to complete the expansion, or to sell their current site for $1.3 million and purchase a new larger facility at a cost of $900,000 in the industrial zone. If the annual interest rate is 8%, evaluate the cash flows for the two options described above and decide which is the most financially beneficial to the corporation? [Note: you are supposed to show every step of your calculation and interpret the result. If Optimal corporation wants to factor inflation in their calculations, what is the equivalent nominal interest rate if expected inflation rate is 4% in the coming years? Critically discuss the significance of including the factor of inflation in corporate finance calculations.
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Optimal corporation wants to expand their manufacturing facilities. They have two choices, first to expand the current site at a cost of $290,000 per year for two years to complete the expansion, or to sell their current site for $1.3 million and purchase a new larger facility at a cost of $900,000 in the industrial zone. If the annual interest rate is 8%, evaluate the cash flows for the two options described above and decide which is the most financially beneficial to the corporation? If Optimal corporation wants to factor inflation in their calculations, what is the equivalent nominal interest rate if expected inflation rate is 4% in the coming years? Critically discuss the significance of including the factor of inflation in corporate finance calculations

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