The following table shows the projected free cash flows of an acquisition target. The potential acquirer wants to estimate its maximu acquisition price at an 8 percent discount rate and a terminal value in year 5 based on the perpetual growth equation with a 4 perce perpetual growth rate. Year Free cash flow 1 2 3 4 5 -920 -460 0 272 844 a. Estimate the target's maximum acquisition price. Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. Answer is complete and correct. Maximum acquisition price $ 14,452 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. × Answer is complete but not entirely correct. Maximum acquisition price $ 39,037 ×

The following table shows the projected free cash flows of an acquisition target. The potential acquirer wants to estimate its maximu acquisition price at an 8 percent discount rate and a terminal value in year 5 based on the perpetual growth equation with a 4 perce perpetual growth rate. Year Free cash flow 1 2 3 4 5 -920 -460 0 272 844 a. Estimate the target's maximum acquisition price. Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. Answer is complete and correct. Maximum acquisition price $ 14,452 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. × Answer is complete but not entirely correct. Maximum acquisition price $ 39,037 ×

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

ChapterM: Time Value Of Money Module

Section: Chapter Questions

Problem 19P: Asset Purchase Price BWP Inc. is considering the purchase of an asset. BWPs required rate of return...

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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 3 4 5 Free cash flow −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 Free cash flow 1 2 -840 -420 Maximum acquisition price 3 a. Estimate the target's maximum acquisition price. (Do not round Intermediate calculations. Round your answer to the nearest whole dollar amount.) 4 5 224 748 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. (Do not round Intermediate calculations. Round your answer to the nearest whole dollar amount.)
In using the two-step approach to Enterprise Valuation (EV), where EV = the Present Value of Planning Period Cash Flows (PVPPCF) + the Present Value of Terminal Value at the end of the Planning Period (PVTV), the PVTV calculation can be based on: a. Level annual cash flows discounted as a perpetuity. b. The Gordon Growth Model. c. An EBITDA multiple. d. All of the above. e. None of the above.
Vilas Company is considering a capital investment of $190,600 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value. Depreciation is by the straight-line method. During the life of the investment, annual net income and net annual cash flows are expected to be $12,700 and $49,600, respectively. Vilas has a 12% cost of capital rate, which is the required rate of return on the investment. Click here to view PV table. (a) Compute the cash payback period. (Round answer to 2 decimal places, e.g. 10.50.) Cash payback period 3.83 years Compute the annual rate of return on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 10.50.) Annual rate of return 6.66316894 %
Windsor Enterprises is using a discounted cash flow model. Identify which model Windsor might use to estimate the discounted fair value under each scenario, and calculate the fair value using the present value tables: Scenario 1: Cash flows are fairly certain $260/year for 5 years Risk-adjusted discount rate is 6% Risk-free discount rate is 2% (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answers to 2 decimal places, e.g. 5,275.25.) Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Scenario 1: Windsor might use Fair value Scenario 2: Windsor might use Fair value $ tA $ Scenario 2: Cash flows are uncertain 75% probability that cash flows will be $260 in 5 years 25% probability that cash flows will be $115 in 5 years Risk-adjusted discount rate is 6% Risk-free discount rate is 2% traditional approach 1,225.50 expected cash flow 1,095.21 model. model.
Windsor Enterprises is using a discounted cash flow model. Identify which model Windsor might use to estimate the discounted fair value under each scenario, and calculate the fair value using the present value tables: Scenario 1: Cash flows are fairly certain $260/year for 5 years Risk-adjusted discount rate is 6% Risk-free discount rate is 2% Scenario 1: (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answers to 2 decimal places, e.g. 5,275.25.) Windsor might use Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Fair value Scenario 2: Windsor might use Fair value $ Scenario 2: Cash flows are uncertain $ 75% probability that cash flows will be $260 in 5 years 25% probability that cash flows will be $115 in 5 years Risk-adjusted discount rate is 6% 11 eTextbook and Media Risk-free discount rate is 2% Save for Later Last saved 1 second ago. model. model.…
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Suppose you are offered a project with the following cash flows: Year Cash Flows 0 1 2 3 4 $8,800 -4,800 -3,500 -2,600 -1,400 a. What is the IRR of this offer? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR % O Accept O Reject ☆ b. If the appropriate discount rate is 13 percent, should you accept this offer? c. If the appropriate discount rate is 25 percent, should you accept this offer?
Asset Purchase Price BWP Inc. is considering the purchase of an asset. BWPs required rate of return on new assets is 12%. The expected net cash inflows generated by the new asset are as follows: Required: Given that the net cash inflows can be realized, what is the maximum amount BWP should be willing to pay for the new asset? If BWP pays that amount, at what amount should BWP recognize the asset on the balance sheet? Assume that each cash inflow occurs at the end of the year. (Contributed by Norma C. Powell)
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Suppose you are offered a project with the following payments: Year Cash Flows 0 $ 9,800 1 −5,300 2 −4,000 3 −3,100 4 −1,700 a. What is the IRR of this offer? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. If the appropriate discount rate is 15 percent, should you accept this offer? c. If the appropriate discount rate is 21 percent, should you accept this offer? d-1. What is the NPV of the offer if the appropriate discount rate is 15 percent? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. d-2. What is the NPV of the offer if the appropriate discount rate is 21 percent? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
Christie, Incorporated, has identified an investment project with the following cash flows. Year 1234 Cash Flow $ 1,075 1,210 1,340 1,420 a. If the discount rate is 6 percent, what is the future value of these cash flows in Year 4? Note: Do not round intermediate calculations and round your answer to 2 decimal p b. What is the future value at an interest rate of 13 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal p c. What is the future value at an interest rate of 27 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal p a. Future value b. Future value c. Future value k