a) Barclays is planning to Acquired FNB .FNB, s current years free cash flow is $10 million. It is projected to grow at 20% per year for the next five years. It is expected to grow at a more modest 5% beyond the fifth year. The firm estimates that its cost of capital is 12% during the next five years and then will drop to 10% beyond the fifth year as the business matures.

Advice if Barclays should proceed with the Acquisition plan if the offer price by FNB shareholders is $300.

b) Assuming that FNB, s current years free cash flow is still $10 million but It is projected to grow at a constant rate of 8% per year indefinably. The firm estimated cost of capital is 12%.

Advice if Barclays should proceed with the Acquisition plan if the offer price by FNB shareholders is $300.