Module $6$: Ch$.9$ Homework $($i$)$

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The following table 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 $5$ based on the perpetual growth equation with a $4$ percent perpetual growth rate.

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$\backslash$table$[[$Year$,1,2,3,4,5],[$Free cash flow,$-890,-445,0,254,808]]$

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a$.$ Estimate the target's maximum acquisition price.

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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. Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.

Maximum acquisition price