Merger Bid

Hastings Corporation is interested in acquiring VandellCorporation. Vandell has 1 million shares outstanding and a targetcapital structure consisting of 30% debt; its beta is 1.10 (givenits target capital structure). Vandell has $8.85 million in debtthat trades at par and pays an 7.2% interest rate. Vandell’s freecash flow (FCF₀) is $2 million per year and is expectedto grow at a constant rate of 5% a year. Both Vandell and Hastingspay a 30% combined federal and state tax rate. The risk-free rateof interest is 6% and the market risk premium is 6%.

Hastings Corporation estimates that if it acquires VandellCorporation, synergies will cause Vandell’s free cash flows to be$2.4 million, $2.7 million, $3.4 million, and $3.63 million atYears 1 through 4, respectively, after which the free cash flowswill grow at a constant 5% rate. Hastings plans to assume Vandell’s$8.85 million in debt (which has an 7.2% interest rate) and raiseadditional debt financing at the time of the acquisition. Hastingsestimates that interest payments will be $1.5 million each year forYears 1, 2, and 3. After Year 3, a target capital structure of 30%debt will be maintained. Interest at Year 4 will be $1.460 million,after which the interest and the tax shield will grow at 5%.

Indicate the range of possible prices that Hastings could bidfor each share of Vandell common stock in an acquisition. Roundyour answers to the nearest cent. Do not round intermediatecalculations.