There is a firm, which we are prospecting as a purchase candidate. It has the following features
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Question:
First, it will enable us to sell to the clients of this firm what we already are selling our existing clients. The revenue addition will be $12 million. However, it will induce $3 million more expenses in attaining that higher level of revenue.
Secondly, it will enable us to sell a division of the firm that does not really connect with our operations for $5 million.
Thirdly, since there is a lot of repetition of positions (we are in the same line of business) we can lay off 50 employees permanently. The average salary of those employees is $60,000. The WACC of the firm is 10%. The coe is 16%.
Calculate the amount that we can bid to acquire this company.
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