Estimate target maximum acquisition price when discount rate

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The table below shows the projected free cash flows of an acquisition target. The potential acquirer wants to estimate its maximum acquisition price at an 8% discount rate and a terminal value in year 5 based on the perpetual growth equation with a 4% perpetual growth rate Year 1 2 3 4 5 Free CFs -600 -300 0 200 700 a. Estimate the target’s maximum acquisition price b. Estimate the target’s maximum acquisition price when the discount rate is 7% and the perpetual growth rate is 5%. c. Consider your answers to parts a) and b) of this question, what is the percentage change in the maximum acquisition price when the discount rate is reduced on percentage point and the perpetual growth rate is increased on percentage point?

Reference no: EM13937559

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