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

Schultz Industries is considering the purchase of Arras Manufacturing. Arras is currently a supplier for Schultz and the acquisition would allow Schultz to better control its material supply. The current cash flow from assets for Arras is $7.7 million. The cash flows are expected to grow at 6 percent for the next five years before leveling off to 3 percent for the indefinite future. The costs of capital for Schultz and Arras are 10 percent and 8 percent, respectively. Arras currently has 3 million shares of stock outstanding and $25 million in debt outstanding.

What is the maximum price per share Schultz should pay for Arras?

Solutions

Expert Solution

Value of the Company Arras = $180.88 millions

Value of Equity = Value of Company - Value of Debt = $180.88 - $25 = $155.88 millions

Max price per share Schultz should pay For Arras = Value of Equity / Total Outstanding Shares

=  $155.88 / 3 = $51.96 Answer

Kindly do inform me in case you have any queries.

jeff jeffy answered 2 years ago
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