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    King Solomon Mining and Cash Tender Offer

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    The King Solomon Mining Company is contemplating a cash tender offer for the outstanding shares of Roanoke Coal Corporation. Roanoke Coal is expected to provide $162,500 in after-tax cash flow each year for the next 20 years. In addition, Roanoke has a $630,000 tax loss carryforward which King Solomon Mining can use in equal amounts over the next two years.

    If King Solomon Mining's corporate tax rate is 34% and its cost of capital is 12%, what is the maximum cash price it should be willing to pay to acquire Roanoke?

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    Solution Summary

    This solution provides step-by-step calculations to estimate the maximum price for a cash tender offer for the King Solomon Mining Company.