Question
The following table shows the projected free cash flows of an acquisition target. The potential acquirer wants to estimate its maximum acquisition price at an
The following table shows the projected free cash flows of an acquisition target. The potential acquirer wants to estimate its maximum acquisition price at an 8 percent discount rate and a terminal value in year 5 based on the perpetual growth equation with a 4 percent perpetual growth rate. Year 1 2 3 4 5 Free cash flow 810 405 0 206 712 a. Estimate the targets maximum acquisition price. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) b. Estimate the targets maximum acquisition price when the discount rate is 7 percent and the perpetual growth rate is 5 percent. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
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