The Byer Corporation, which has a 16 percent after-tax cost of capital, is considering the acquisition of the Cellar Company, which has about the same degree of systematic risk. If the merger were effected, the incremental cash flows would be as follows:

What is the maximum price that Byer should pay for Cellar, assuming the business-risk complexion of the company remains unchanged?

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AVERAGE FOR YEARS (IN MILLIONs) 1-5 6-10 $15 $10 11-15 16-20 Annual cash income attributable to Cellar Required new investment $10 S20 $15 Net after-tax cash flow s 8