What is the maximum price of diamond inc

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Diamond Inc. is considering purchasing a diamond mine. They estimate that after taxes the mine will generate $2 million dollars a year in free cash flow for the next two years. Starting in the third year they expect the cash flows to decline by 5% per year forever as the supply of diamonds in the mine declines. If Diamond Inc has an Opportunity Cost of Capital of 15% what is the maximum price they should pay for the mine?

Reference no: EM132742501

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