Firm Valuation Schultz Industries is considering the purchase of Arras Manufacturing. Arras is currently a supplier for...

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Firm Valuation Schultz Industries isconsidering the purchase of Arras Manufacturing. Arras is currentlya supplier for Schultz and the acquisition would allow Schultz tobetter control its material supply. The current cash flow fromassets for Arras is $7.1 million. The cash flows are expected togrow at 10 percent for the next five years before leveling off to 4percent for the indefinite future. The costs of capital for Schultzand Arras are 11 percent and 9 percent, respectively. Arrascurrently has 2.5 million shares of stock outstanding and $22million in debt outstanding. What is the maximum price per shareSchultz should pay for Arras?

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Solution maximum price per share 6763 Working Notes Each year future cash flows Year 1Year 0 1growth rate Year 1 7100000 1 010 7810000 Year 2 7810000 1 010 8591000 Year 3 8591000 1 010 9450100 Year 4 9450100 1 010 10395110 Year 5 10395110 1 010 See Answer

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Firm Valuation Schultz Industries isconsidering the purchase of Arras Manufacturing. Arras is currentlya supplier for Schultz and the acquisition would allow Schultz tobetter control its material supply. The current cash flow fromassets for Arras is $7.1 million. The cash flows are expected togrow at 10 percent for the next five years before leveling off to 4percent for the indefinite future. The costs of capital for Schultzand Arras are 11 percent and 9 percent, respectively. Arrascurrently has 2.5 million shares of stock outstanding and $22million in debt outstanding. What is the maximum price per shareSchultz should pay for Arras?