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?