The Byer Corporation which has a 16 percent after-tax cost of capital is considering the

QUESTION

The Byer Corporation, which has a 16 percent after-tax cost of capital, is considering the acquisition of the Cellar Company, which has about the same degree of systematic risk. If the merger were effected, the incremental cash flows would be as follows:AVERAGE FOR YEARS (in millions)1561011151620Annual cash income attributable to Cellar$10$15$20$15Required new investment251010Net after-tax cash flow$ 8$10$10$ 5What is the maximum price that Byer should pay for Cellar, assuming the business-risk complexion of the company remains unchanged?
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