Great Subs, Inc., a regional sandwich chain, is considering purchasing a smaller chain, Eastern Pizza, which is currently financed using 20% debt at…

Great Subs, Inc., a regional sandwich chain, is considering purchasing a smaller chain, Eastern Pizza, which is currently financed using 20% debt at a cost of 8%. Great Subs’ analysts project that the merger will result in incremental free cash flows and interest tax savings of $2 million in Year 1, $4 million in Year 2, $5 million in Year 3, and $117 million in Year 4. (The Year 4 cash flow includes the horizon value of $107 million.) The acquisition would be made immediately, if it is to be undertaken. Eastern’s pre-merger beta is 2.6, and its post-merger tax rate would be 34%. The risk-free rate is 8%, and the market risk premium is 4%. What is the appropriate rate to use in discounting the free cash flows and the interest tax savings?

Order your essay today and save 20% with the discount code: GREEN

Don't use plagiarized sources. Get Your Custom Essay on
Great Subs, Inc., a regional sandwich chain, is considering purchasing a smaller chain, Eastern Pizza, which is currently financed using 20% debt at…
Just from $13/Page
Order Essay

Order a unique copy of this paper

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
Top Academic Writers Ready to Help
with Your Research Proposal
Live Chat+1(978) 822-0999EmailWhatsApp

Order your essay today and save 20% with the discount code GREEN