Murlow Company is a privately held firm. David Murlow, its owner-manager, has been approached by Murson Inc.

Question:

Murlow Company is a privately held firm. David Murlow, its owner-manager, has been approached by Murson Inc. for a possible acquisition. The firm has no debt.
What is the minimum price David Murlow should ask, given the following information about his firm?
• Sales, currently at $500 million, are expected to grow by 6 percent for the next three years, and then by 4 percent in The operating margin before tax is expected to remain at 20 percent of sales
• Annualcapitalexpenditureisexpectedtobeequaltothedepreciationexpense of the year
• The working capital requirement would remain at 18 percent of sales
• The corporate tax rate is 40 percent
• David Murlow requires a return of at least 10 percent for his family investment in the firm
Perpetuity
Perpetuity refers to payments that are made without an end or maturity date. A perpetuity is classified as an annuity, which is something that earns a dividend or receives a payment at a regularly scheduled interval, generally yearly. So, how...