QX Company is considering the acquisition of an operating division from a multinational

company. If it acquires the division, it will invest an additional Rs.12 million immediately to

modernize equipment. It has been estimated that the annual after-tax cash flows after the

acquisition and additional investment will be as follows:

Year Rs. million

1 11

2 12

3 13

4 14

5 onwards (per year) 7

The cash flow at time 5 is expected to grow at 5% in perpetuity

An appropriate after-tax cost of capital for valuing the acquisition is 7.5%.

Requirement:

Estimate the maximum amount that QX Company should be prepared to pay to acquire

the operating division from the multinational company.