Tinga Inc., a poorly run restaurant chain, is currently fairly valued, based on the expectation that it would generate $25 million in after-tax operating income next year, growing at 2% a year. The company has $500 million in invested capital and is expected to maintain its current return on investment capital; its cost of capital is 8%. You believe that you can run the firm better and double its after- tax operating income without adding any invested capital. Assuming that you can maintain your return on capital in perpetuity as well, how much of a control premium (in percentage terms, over and above current value) would you be willing to pay for Tinga?

Answer rating: 100% (QA)

To calculate the control premium we need to determine the value of Tinga Inc both before and after y... View the full answer