What is the maximum NPR MedTech should pay for IV Pumps

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Reference no: EM132844801

Question - NPR MedTech Corporation is considering acquiring IV Pumps Inc. a relatively small company that manufactures intravenous pumps for use by hospitals. NPR MedTech believes it can grow IV Pumps' sales by 30 percent per year for the first 5 years after it acquires the firm. In the year just ended, IV Pumps' sales were $1 million. Operating expenses (cost of goods plus selling, general, and administrative expenses) are projected to equal 60 percent of sales. Depreciation expense is fore- casted to be $100,000, $150,000, $175,000, $200,000, and $225,000, respectively, for the next 5 years. Retentions to sustain the business are expected to equal $225,000 per year for the next 5 years. After 5 years, net cash flows are expected to grow at a constant rate of 6 percent. NPR MedTech's tax rate is 40 percent. Assuming that the appropriate cost of capital for discounting the cash flow is 12 percent, what is the maximum NPR MedTech should pay for IV Pumps?

Reference no: EM132844801

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