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 Free cash flow 1 2 3 4 5 -840 -420 0 224 748
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 Free cash flow 1 2 3 4 5 -840 -420 0 224 748
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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![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
Free cash flow
-840 -420
3
0
4
5
224
748
a. Estimate the target's maximum acquisition price.
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
Maximum acquisition price
b. Estimate the target's maximum acquisition price when the discount rate is 7 percent and the perpetual growth rate is 5 percent.
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
Maximum acquisition price](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8b10cb38-ae6c-4a56-9343-37fd8367c5e1%2F39db637b-2f0f-4a30-9721-395f5ced77b4%2Ftt6jfes_processed.png&w=3840&q=75)
Transcribed Image Text: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
Free cash flow
-840 -420
3
0
4
5
224
748
a. Estimate the target's maximum acquisition price.
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
Maximum acquisition price
b. Estimate the target's maximum acquisition price when the discount rate is 7 percent and the perpetual growth rate is 5 percent.
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
Maximum acquisition price
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