The target of an acquisition generates cash flows of $8 million per year with a risk level

Question:

The target of an acquisition generates cash flows of $8 million per year with a risk level consistent with a return on equity of 16%.

a. How much should an acquirer be willing to pay if it won’t consider more than five years of future earnings in setting a price?

b. What is the per-share price if the target has 300,000 shares of common stock outstanding?

c. Assume the acquirer intends to pay for the acquisition with its own stock, which is currently selling for $36 per share. How many shares must be offered for each share of the target’s stock?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...