What can be used as a measure to manage volatility in industrial demand quizlet?

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# <span style=color:red>The Birdie Golf–Hybrid Golf Merger</span> Birdie Golf, Inc., has been in merger talks with Hybrid Golf Company for the past six months. After several rounds of negotiations, the offer under discussion is a cash offer of $250 million for Hybrid Golf. Both companies have niche markets in the golf club industry, and both believe that a merger will result in synergies due to economies of scale in manufacturing and marketing, as well as significant savings in general and administrative expenses. &emsp;Bryce Bichon, the financial officer for Birdie, has been instrumental in the merger negotiations. Bryce has prepared the following pro forma financial statements for Hybrid Golf assuming the merger takes place. The financial statements include all synergistic benefits from the merger. <center> | | 2016 | 2017 | 2018 | 2019 | 2020 | |--------------------------------|:---------------:|:---------------:|:---------------:|:---------------:|:---------------:| | Sales |$360,000,000 | $405,000,000 |$450,000,000 | $508,500,000 |$562,500,000 | | Production costs | 248,000,000 | 284,000,000 | 315,000,000 | 355,500,000 | 393,000,000 | | Other expenses | 36,000,000 | 41,000,000 | 45,000,000 | 51,000,000 | 56,000,000 | | Depreciation | 33,000,000 | 36,000,000 | 37,000,000 | 38,000,000 | 38,000,000 | | EBIT | $43,000,000 |$44,000,000 | $53,000,000 |$64,000,000 | $75,500,000 | | Interest | 8,500,000 | 10,000,000 | 11,000,000 | 11,250,000 | 12,500,000 | | Taxable income |$34,500,000 | $34,000,000 |$42,000,000 | $52,750,000 |$63,000,000 | | Taxes (40%) | 13,800,000 | 13,600,000 | 16,800,000 | 21,100,000 | 25,200,000 | | Net income | **$20,700,000** | **$20,400,000** | **$25,200,000** | **$31,650,000** | **$37,800,000** | | Additions to retained earnings | 0 |$15,400,000 | $11,700,000 |$11,700,000 | $10,800,000 | </center> &emsp;If Birdie Golf buys Hybrid Golf, an immediate dividend of$67.5 million would be paid from Hybrid Golf to Birdie. Stock in Birdie Golf currently sells for $87 per share, and the company has 18 million shares of stock outstanding. Hybrid Golf has 8 million shares of stock outstanding. Both companies can borrow at an 8% interest rate. Bryce believes the current cost of capital for Birdie Golf is 11%. The cost of capital for Hybrid Golf is 12.4%, and the cost of equity is 16.9%. In five years, the value of Hybrid Golf is expected to be$270 million. &emsp;Bryce has asked you to analyze the financial aspects of the potential merger. Specifically, he has asked you to answer the following questions. <span style=color:blue>**QUESTION**</span> What is the highest price per share that Birdie should be willing to pay for Hybrid?

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