What is the terminal value

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Pizza Place, a national pizza chain, is considering purchasing a smaller chain, Western Mountain Chain. Pizza Place's analysts project that the merger will result in incremental net cash flows of $1.8 million in Year 1, $2.3 million in Year 2, and $2.95 million in Year 3, $5.2 million in Year 4, and $5.5 million in Year 5. In addition, Western's Year 5 cash flows are expected to grow at a constant rate of 4.2% after Year 5. Assume that all cash flows occur at the end of the year. The acquisition will be made immediately if it is undertaken. Western's post merger beta is estimated to be 1.4 and its post merger tax rate would be 40%. The risk free rate is 6% and the market risk premium is 4.5%. what is the terminal value?

Reference no: EM13291735

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