Your firm is considering the acquisition of a small rival that has developed some exciting new production processes. You have been assigned to estimate the possible synergies and to establish a reasonable value for this firm.

Recently, the target firm announced cash flows of $$12,750,000.$ You feel that the firm$$s cash flows will probably grow at $2\mathrm{.}75\%$ per year into the future, and that $8\%$ is a reasonable discount rate for these flows. You also estimate that annual synergies from the merger will be $$2,250,000$ in perpetuity.

Based on these assumptions, what is a reasonable price to offer for the target firm?