Your firm is bidding to buy a manufacturing business in Omaha, Nebraska. After conducting a detailed financial and valuation analysis, you believe the firm is worth $14 million. You therefore make a formal offer to their board for $14 million, payable in 3 installments of $6 million, $5 million, and $3 million in exactly 1, 2, and 3 years from now, respectively. The firm rejects your offer and instead counteroffers for $16 million, payable in 2 installments of $10 million and $6 million, payable 1 and 2 years from now, respectively. After a few additional negotiations you accept their counteroffer. You have been using a 10% discount rate in your analysis.
a.) What is the economic value of your first offer in terms of dollars today?
b.) What is the economic value of their counteroffer in terms of dollars today?
c.) Did you wind up paying more or less than $14 million for the firm?