What is the target maximum acquisition price

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Question - The following table show the projected free cash flows of an acquisition target. The potential acquirer wants to estimate its maximum acquisition price at an 8 percent discount rate and a terminal value in years 5 based on the perpetual growth equation with a 4 percent growth rate.

Year

1

2

3

4

5

Free Cash Flow

$-900

$-450

$0

$260

$820

Required -

1. What is the target maximum acquisition price?

2. What is the target's maximum acquisition price when the discount rate is 7 percent, and the perpetual growth rate is 5 percent?

Reference no: EM133168162

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