The table below 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 5based on the perpetual growth equation with a 4 percent perpetual growth rate a Estimate th...

a The terminal value 700 1 004 008 004 18200 Discounting th ...

The table below shows the projected free cash flows of an acquisition target. The potential acquirer wants

Question:

The table below shows the projected free cash flows of an acquisition target. The potential acquirer wants to estimate its maximum acquisition price at an 8 percent and a terminal value in year 5based on the perpetual growth equation with a 4 percent perpetual growth rate.

a. Estimate the target's 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.
c. Considering your answers to parts (a) and (b) of this question, what is the percentage change in the maximum acquisition price when the discount rate is reduced one percentage point and the perpetual growth rate is increased one percentage point?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...