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A British food distribution conglomerate purchased a Canadian food store chain for 75 mil- lion 3 years ago. There was a net loss of
A British food distribution conglomerate purchased a Canadian food store chain for 75 mil- lion 3 years ago. There was a net loss of 10 million at the end of year 1 of ownership. Net cash flow is increasing with an arithmetic gradient of +5 million per year starting the second year, and this pattern is expected to continue for the foreseeable future. This means that breakeven net cash flow was achieved this year. Because of the heavy debt financing used to purchase the Canadian chain, the international board of directors expects a MARR of 25% per year from any sale (a) The British conglomerate has just been offered 159.5 million by a French company wishing to get a foothold in Canada. Use FW analysis to determine if the MARR will be realized at this selling price. (b) If the British conglomerate continues to own the chain, what selling price must be ob- tained at the end of 5 years of ownership to just make the MARR?
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