47.

The annual after-tax free cash flow from the acquisition by Pacific Care of Universal Health is projec-

ted to be $12 million. These flows are expected to continue for 20 years. No value is placed on cash

flows beyond 20 years. If the appropriate risk-adjusted discount rate for the merged firm is 15 percent,

what is the maximum amount Pacific Care should pay to acquire Universal Health? While the answer states it C

Solution: PV = $12 million(6.259) = $75.108 million

Can you explain how it was calculated, see my excel attached, and using financial calculator. The No value is placed on cashflows beyond 20 years is confusing me(Terminal value), since in excel I am getting $75.111M. I understand it seems that's a zero growth.

What is max amount Pacific Care should pay to acquire Universal Health After Tax Free Cash Flow from acquisition 20 years Risk adjusted discount: 15% $ $ 1 12,000,000 $ 115% 10,434,783 $ 2 3 12,000,000 ### 132% 152% 9,073,724 $ 7,890,195 $ $ 4 12,000,000 $ 175% 6,861,039 $ 5 12,000,000 $ 201% 5,966,121 $ 6 12,000,000 $ 231% 5,187,931 $ 7 12,000,000 $ 266% 4,511,244 $ 8 12,000,000 306% 3,922,821 $ $ 9 12,000,000 $ 352% 3,411,149 $ 10 12,000,000 $ 405% 2,966,216 $ 11 12,000,000 $ 465% 2,579,319 $ 12 12,000,000 535% 2,242,886 13 ### 615% ### 14 ### 708% ### 15 16 ### $ 12,000,000 814% 936% ### $ 1,282,377 17 18 19 20 ### $ 12,000,000 $ 12,000,000 $ 12,000,000 1076% 1238% 1423% 1637% ### $ 969,661 $ 843,184 $ 733,203 $ - $ $ 1637% - $ 75,111,978