Company is interested in acquiring competitor

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Reference no: EM131074592

Your company is interested in acquiring a competitor. The acquisition cost is estimated at $5 to $6 billion. The marketing manager has reported that the business opportunity is $50 billion, assuming ten years of sales at $5 billion per year in present value terms. You are not comfortable with the acquisition and would like to see an option analysis for a three-year window. The finance manager has reported that given the risk-free rate of return of 5%, volatility of 1.4, and using Black-Scholes formula the option value is $1.29 billion. The CEO wants you to review the available information and make a recommendation.

Reference no: EM131074592

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