The following table shows the projected free cash flows of an acquisition target. The potential acquirer...
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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. Year Free cash flow a. Estimate the target's maximum acquisition price. Maximum acquisition price 3 4 2 -990 -495 0 Maximum acquisition price 5 314 928 b. Estimate the target's maximum acquisition price when the discount rate is 7 percent and the perpetual growth rate is 5 percent. 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. Year Free cash flow a. Estimate the target's maximum acquisition price. Maximum acquisition price 3 4 2 -990 -495 0 Maximum acquisition price 5 314 928 b. Estimate the target's maximum acquisition price when the discount rate is 7 percent and the perpetual growth rate is 5 percent.
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