Youre the CFO of Phish Oil Company, and youve just finished a hastily prepared summary of a highly visible and very exciting company named Golgi Apparatus, Inc. Your analysis was conducted in preparation for a special Board of Directors meeting to be held in a few hours to consider the opportunity. Golgi Apparatus, Inc. has just announced its interest in selling to a strategic acquirer and the market is abuzz with chatter on the subject.

The CEO and the Board are justifiably interested in submitting an indication of interest to the investment banker representing Golgi Apparatus, Inc., and your analysis will be helpful in pricing that offer. Its a compelling acquisition opportunity for Phish Oil Company but, in your humble opinion, it is a risky venture due to the uncertainty of the success Phish Oil Company will have in integrating the both the business lines and cultures. As a result of your perception of the added risk, youve chosen to evaluate the acquisition using a 16% WACC, which is 200 basis points higher than Phish Oil Companys overall, standard WACC. You are keenly aware of the impact this will have on the pricing of the deal, and you expect some push-back from the board on this point based on their concern that Phish Oil Company may be outbid on the deal.

In the Board meeting, you present your findings by laying out your financial expectations of Golgi Apparatus, Inc. and applying a discounted cash flow model that reaches a value conclusion. The current level of their Free Cash Flow is $8,000,000 and a reasonable estimate of long term sustainable FCF growth is set at 5% in your analysis. As you expected, the CEO and several board members are alarmed by your choice of a 16% discount rate versus the standard WACC, and want you to indicate what a reduction in the WACC by 200 basis points would do to the value.

As you go to your laptop to make that quick model change in response to their request, you realize in a state of panic that your laptop battery has run out. Knowing that you dont have the time to go back to your office to get the charging cable, you walk up to the whiteboard and present some simple but compelling math that shows the Board members by exactly how much you believe using the reduced WACC over-values Golgi Apparatus, Inc.

Based solely on the information presented above, what analysis did you put on the whiteboard?