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You are considering the acquisition of Firm A. Proforma financial information for Firm A is below; the appropriate discount rate for Firm A is
You are considering the acquisition of Firm A. Proforma financial information for Firm A is below; the appropriate discount rate for Firm A is 15%. After year 20, you will assume that the cash flow from year 20 will then grow at 2% forever. The tax rate is 40%. You will take on Firm A's debt. Firm A Years 1-5 Year 6 Years 7-13 Year 14 Years 15-20 Sales 2,000 2,500 3,000 3,000 4,000 Depreciation 100 100 80 80 90 EBIT is assumed to be 30% of Sales. 60 60 70 70 10 Interest Capital Expenditures 0 800 0 700 0 Increases in Working Capital is 5% of the change in sales; invested the period before the sales increase. Principal Payment 0 Calculate the discounted cash flow value for Firm A. 500 0
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