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Ms. Brown, the owner of Southern Comfort Inc, has approached you with an offer to sell you her company for $80 milion in cash. Ms.
Ms. Brown, the owner of Southern Comfort Inc, has approached you with an offer to sell you her company for $80 milion in cash. Ms. Brown has started the company 2 years ago when she invested $60 milion. The company paid her a dividend of $10 million last year. She provided you with the following expected cash flow analysis (see the table below), and your assistant confirmed that the projections are reasonable. TO Year Dividend Firm Value T1 $12 T2 $15 T3 $17 $68 If Ms Brown sells to you, what is her realized annual rate of return on her original investment? You know that you can invest in projects of similar risk with 12% rate of return. The risk free rate is 5%. Should you buy Southern Comfort? (answer YES or NO). If you negotiate and are able to buy Southern Comfort for $75 million, what is your expected rate of return on this investment
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