11. You work for a paper mill wanting to acquire a lumber company to reduce costs. You estimate that the present value of the lumber company as it currently operates is $500 million, based on the DCF analysis. By purchasing the lumber company, you believe you could create synergies with a present value of $50 million, in the form of reduced costs and vertical integration. The lumber company is publicly traded, so you're able to see that the market is valuing the company at $400 million (considering the stock price, the number of shares, and accounting for debt and cash). If your bid for the company is more than ( $million), you will lose all the synergy value creation.

12. In an attempt to figure out how much you should pay for a house, you perform a valuation. You estimate that the going rent for the house will be $12,000 on an annual basis, which you expect to increase by 3 percent each year. Considering other similarly risky investments, you calculate a discount rate of 13 percent. For the sake of convenience, assume the house will last forever (there's typically not much difference between this and twenty to thirty years of cash flows). The maximum you are willing to pay for this house would be $. (in units and no 1000 separators)

13. When you are valuing a company, the usual methodology is to forecast near-term cashflows based on available information and use the growing perpetuity formula beyond that for the .

14. One reason that firms conduct share buybacks instead of paying dividends is because share repurchases may receive favorable treatment compared to payment of dividends.

15. In order to reduce the risk of overpaying for an acquisition, firms need to undertake prudent valuation by, for example, conducting as part of due diligence.