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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

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 firms cash flows will probably grow at 2.75% 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?

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