−830 −415 0 218 736 a. Estimate the target’s maximum acquisition price. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) b. Estimate the target’s maximum acquisition price when the discount rate is 7 percent and the perpetual growth rate is 5 percent. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
The following table shows the projected free cash flows of an acquisition target. The potential acquirer wants to estimate its maximum acquisition price at an 8 percent discount rate and a terminal value in year 5 based on the perpetual growth equation with a 4 percent perpetual growth rate.
| Year | 1 | 2 | 3 | 4 | 5 |
| −830 | −415 | 0 | 218 | 736 | |
a. Estimate the target’s maximum acquisition price. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
b. Estimate the target’s maximum acquisition price when the discount rate is 7 percent and the perpetual growth rate is 5 percent. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
