FrontLier Company is planning to acquire Stint Corp. The additional pre-tax income from the acquisition will be $150,000 in the first year, but it will increase by 5% in future years. Because of diversification, the beta of FronLier will decrease from 1.20 to 0.9. Currently the return on the market is 11% and the riskless rate is 6%. What is the maximum price that FrontLier should pay for Stint Corp? The tax rate of FrontLier is 30%. O 1,870,000 O 1,872,500 1,875,000 O 1,909,091

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter11: Capital Budgeting And Risk
Section: Chapter Questions
Problem 18P
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FrontLier Company is planning to acquire Stint Corp. The additional
pre-tax income from the acquisition will be $150,000 in the first
year, but it will increase by 5% in future years. Because of
diversification, the beta of FronLier will decrease from 1.20 to 0.9.
Currently the return on the market is 11% and the riskless rate is
6%. What is the maximum price that FrontLier should pay for Stint
Corp? The tax rate of FrontLier is 30%.
O 1,870,000
1,872,500
1,875,000
O 1,909,091
Transcribed Image Text:FrontLier Company is planning to acquire Stint Corp. The additional pre-tax income from the acquisition will be $150,000 in the first year, but it will increase by 5% in future years. Because of diversification, the beta of FronLier will decrease from 1.20 to 0.9. Currently the return on the market is 11% and the riskless rate is 6%. What is the maximum price that FrontLier should pay for Stint Corp? The tax rate of FrontLier is 30%. O 1,870,000 1,872,500 1,875,000 O 1,909,091
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