The risk free rate is 6 and the market risk premium os 45


Pizza Place, a national pizza chain, is considering purchasing a smaller chain, Western Mountain Chain. Pizza Place's analysts project that the merger will result in incremental net cash flows of $1.8 million in Year 1, $2.3 million in Year 2, and $2.95 million in Year 3, $5.2 million in Year 4, and $5.5 million in Year 5. In addition, Western's Year 5 cash flows are expected to grow at a constant rate of 4.2% after Year 5. Assume that all cash flows occur at the end of the year. The acquisition will be made immediately if it is undertaken. Western's post merger beta is estimated to be 1.4 and its post perger tax rate woud be 40%. The risk free rate is 6% and the market risk premium os 4.5%. what is the value of Western Mountain Pizza to Pizza Place?

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Finance Basics: The risk free rate is 6 and the market risk premium os 45
Reference No:- TGS0630491

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