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6. You work for a U.S.-based firm that wants to acquire Cool Koalas Corp. (CKC for short), which is located in Australia. In initial negotiations,
6. You work for a U.S.-based firm that wants to acquire Cool Koalas Corp. (CKC for short), which is located in Australia. In initial negotiations, CKC has asked for a purchase price of 100 million Australian dollars (AUD). If your company completes the purchase, it will keep CKC's operations for two years and then sell the company. In the recent past, CKC has generated annual cash flows of AUD25 million per year, but you believe you can increase these cash flows 10% each year improving operations. Given these improvements, you believe you will be able to resell CKC in two years for AUD120 million. The current exchange rate for the AUD is $0.75, and exchange rate forecasts for the next two years indicate values of $0.75 and $0.72, respectively. Given these facts, should your firm pay AUD 100 million for CKC if the required rate of return is 20%? What is the maximum price your firm should be willing to pay
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