Exhibit 1 presents six years of actual and pro-forma data relating to an acquisition opportunity (target firm). Assume that the corporate tax rate is 40%. The firm has just completed a year (1992) in which sales reached $50 million. Sales are expected to grow at 5% per year over the next five years (1993- 1997). The firm has one million shares outstanding with a stock price of $26 per share and debt outstanding of $15 million (in terms of market value). The firm has no cash, and its appropriate cost of capital (WACC) is 10%.