Question
A company is considering a potential acquisition of a target company. Management believes the target can generate cash flows of $187,000, $220,000, and $245,000 over
A company is considering a potential acquisition of a target company. Management believes the target can generate cash flows of $187,000, $220,000, and $245,000 over the next three years, respectively. For the sake of simplicity, assume that these cash flows occur entirely at the end of each year. After that time, they feel the business will be worthless. They have determined that a discount rate of 13.5% compounded annually is applicable to this potential acquisition. What should the acquiring company be willing to pay today to acquire the target? Round your answer to the nearest dollar
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