Question: Hirschler Motors is considering making a takeover bid for the chain of Richards Auto Superstores. Richards has 800,000 shares of stock outstanding, which is trading

Hirschler Motors is considering making a takeover bid for the chain of Richard’s Auto Superstores. Richard’s has 800,000 shares of stock outstanding, which is trading at $18 per share. Richard’s generated $2.5 million in cash last year, and cash flows are expected to increase by 6% per year for at least 10 years. Assume the appropriate discount rate is 12%. What percent premium can Hirschler afford to offer for Richard’s stock if management wants to justify the investment over 10 years? 9 years? 8 years?

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