How large would the annual cash flows

Assignment Help Financial Management

Reference no: EM13848532

A few years ago a subsidiary of Stanley Works offered to purchase another company for $54.3 million in order to diversify its business. One way to value an entire company is to find the present value of the annual cash flows generated by the company.

a. How large would the annual cash flows (after-tax) have to be in order to justify Stanley’s purchase price if they were discounted at 18% and continued indefinitely with no growth?

b. Assume that the first annual cash flow (one year after acquisition) was expected to be $8.0 million, but it would then grow at a constant annual growth rate (indefinitely). If Stanley’s required rate of return (discount rate) was 18%, how large would the growth rate have to be in order to justify the purchase price?

Reference no: EM13848532

Questions Cloud

Call option contracts with strike price : You purchased four call option contracts with a strike price of $40 and an option premium of $1.25. You closed your contract on the expiration date when the stock was selling for $42.50 a share. What is your total profit or loss on your option positi..

Explain the is-lm models biggest drawback : Explain why equilibrium is achieved in the markets for goods and money. Explain the IS-LM model's biggest drawback.

What is the value-use financial calculator : What is the value today of $4,600 per year, at a discount rate of 10 percent, if the first payment is received 6 years from today and the last payment is received 20 years from today?

With projected annual sales growth : With a projected annual sales growth of 15% projected annual earnings retention of 12%, and a cash cycle of 30 days, is there a need for external financing?

How large would the annual cash flows : A few years ago a subsidiary of Stanley Works offered to purchase another company for $54.3 million in order to diversify its business. One way to value an entire company is to find the present value of the annual cash flows generated by the company...

Disclose behavior reported by students : When do you have to disclose behavior reported by students: abuse, drug use, pregnant, hurting others, hurting self? 300 hundred words with at least one reference.

What single annual rate of interest : Bill Christenson deposited $40,000 in his credit union on September 23, 1993. Recently, while going through some papers he discovered the account. How much should Bill have in this account on September 23, 2015? If Bill had invested in a twenty-two y..

Find the reaction of the car at the lowest point p : A car while travelling at a speed of 72 km/hr. Passes through a curved portion of road in the form of an arc of a radius 10m . If the mass of the car is 500 kg. Find the reaction of the car at the lowest point P.

Create a pert chart that shows the project : Chapter Case- Town of Eden Bay. The town of Eden Bay owns and maintains a fleet of vehicles. You are a systems analyst reporting to Dawn, the town's IT manager. Create a PERT chart that shows the project

User Account

All Pages