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.

Free Cash Flows:

Year 1: -960

Year 2: -480

Year 3: 0

Year 4: 296

Year 5: 892

1. Estimate the targets maximum acquisition price.

b. Estimate the targets maximum acquisition price when the discount rate is 7 percent and the perpetual growth rate is 5 percent.