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 2.75% 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?
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 2.75% 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?