Business, 18.12.2019 00:31 palcochran1313

Alarge pet-food manufacturer is considering buying a small boutique cat food business to add to their portfolio of pet foods. the head of the finance division has approached you, a recent twu graduate, to conduct a financial analysis to determine the most the firm should pay for the cat food business.

the valuation of the cat-food business is based on cash flows of $180,500 per year over a five year period. the target business has the same risk as the firm’s overall operations. the cost of equity is 15 percent and the cost of debt is 3 percent on an after-tax basis. the firm’s capital structure consists of 10 million in equity and 8 million in debt.

1. calculate the wacc for this firm?

2. what is the most the firm can pay for the business per its required return (wacc) ?

3. how would a change in the wacc change the amount the firm would be willing to pay for the cat food business?

show work and explain

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