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Question
In March of 2011, Macklemore Corp. considered an acquisition of Blue Scholar Learning, Inc. (BSL), a privately-held educational software firm. As a first step in deciding what price to bid for BSL, Macklemore's CFO, Ryan Lewis, has prepared a five-year financial projection for the company assuming the acquisition takes place. Use this projection and BSL's 2010 actual financial figures to answer the questions below.
Assume that at year-end 2015 the company's equity is worth 15 times earnings after tax and its debt is worth book value. Macklemore's WACC is 8.0 percent. BSL's WACC is 11.5 percent, and the average of the two companies' WACCs, weighted by sales, is 8.2 percent. What is the maximum acquisition price (in $ millions) Macklemore should pay to acquire BSL's equity at the end of 2010?
A. $3,484.68
B. $4,723.26
C. $4,938.06
D. $5,554.68
E. $6,343.26
F. None of the above.
Answer
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