Question: Ron Paul Pharmaceuticals is interested in acquiring Old Drugs Ltd. The projected cash flow statement for Old Drugs after the merger is shown below, and

Ron Paul Pharmaceuticals is interested in acquiring Old Drugs Ltd. The projected cash flow statement for Old Drugs after the merger is shown below, and these cash flows are estimated to grow at a constant rate of 6 percent per year:

Net revenues $305.6

Operating expenses $244.8

Depreciation $16.0

Earnings before interest and taxes (EBIT) $44.8

Interest $12.3

Earnings before taxes $32.5

Taxes $11.4

Net profit $21.1

Estimated retentions $19.2

The mean market multiple of recent pharmaceutical mergers is 10.265 times the EBITDA.

Estimate the equity value of Old Drugs Ltd. using the market multiple method.

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