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You work for a U.S.-based firm that wants to acquire Cool Cats Corp. (CCC for short), which is located in Canada. In initial negotiations, CCC

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You work for a U.S.-based firm that wants to acquire Cool Cats Corp. (CCC for short), which is located in Canada. In initial negotiations, CCC has asked for a purchase price of 100 million Canadian dollars (CAD). If your company completes the purchase, it will keep CCC's operations for two years and then sell the company. In the recent past, CCC has generated annual cash flows of CAD20 million per year, but you believe you can increase these cash flows 10% each year by improving operations. Given these improvements, you believe you will be able to resell CCC in two years for CAD 120 million. The current exchange rate for the CAD is $0.80, and exchange rate forecasts for the next two years indicate values of $0.80 and $0.78, respectively. Given these facts, should your firm pay CAD 100 million for CCC if the required rate of return is 20% ? What is the maximum price your firm should be willing to pay

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