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The company has an opportunity to purchase a small company (Trek Travel) which will augment the current operations of the company. The cash flows from
The company has an opportunity to purchase a small company (Trek Travel) which will augment the current operations of the company. The cash flows from the company are variable as it is still a growing company. The owners of the company have indicated that they would be willing to sell the company to Short Stop for \$2 million dollars. An independent accountant has reviewed Trek Travel's annual statements and has estimated the future (yearly) cash flows from its operations to be: Yr 1: $100,000, Yr 2:$300,000, Yr 3: $500,000, Yr 4:$600,000, Yr 5: $800,000 and Yr 6:$1,100,000. Short Stop requires a rate of return, for an investment of this kind, of 9% p.a. As this project is the purchase of another company, your manager wishes for you to explain the objective of maximising / enhancing shareholder wealth. How would the managers of a company achieve this goal
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