Question

Based on the estimated future incremental cash flows, what is the highest price (total amount, not per share) JHC should offer Mobile for a cash acquisition? Assume a cost of capital of 13%. how would I find the answer to this? what would the excel formulas be?

if the incremental values are

19200000 for year 1

18900000 for year 2

19900000 for year 3

22350000 for year 4

26900000 for year 5

28000000 for years 6-30

Answer 1

Lest discount all the CF using excel:

Year	CF	Discount factor			Discounted CF
1	19200000	1/1.13^1	=	0.884955752	0.884955752212389*19200000	=	16991150
2	18900000	1/1.13^2	=	0.783146683	0.783146683373796*18900000	=	14801472
3	19900000	1/1.13^3	=	0.693050162	0.693050162277696*19900000	=	13791698
4	22350000	1/1.13^4	=	0.613318728	0.613318727679377*22350000	=	13707674
5	26900000	1/1.13^5	=	0.542759936	0.542759935999449*26900000	=	14600242
6	28000000	1/1.13^6	=	0.480318527	0.48031852743314*28000000	=	13448919
7	28000000	1/1.13^7	=	0.425060644	0.425060643746142*28000000	=	11901698
8	28000000	1/1.13^8	=	0.376159862	0.37615986172225*28000000	=	10532476
9	28000000	1/1.13^9	=	0.332884833	0.332884833382522*28000000	=	9320775.3
10	28000000	1/1.13^10	=	0.294588348	0.294588348126125*28000000	=	8248473.7
11	28000000	1/1.13^11	=	0.260697653	0.260697653208961*28000000	=	7299534.3
12	28000000	1/1.13^12	=	0.230705888	0.23070588779554*28000000	=	6459764.9
13	28000000	1/1.13^13	=	0.204164502	0.20416450247393*28000000	=	5716606.1
14	28000000	1/1.13^14	=	0.180676551	0.180676550861885*28000000	=	5058943.4
15	28000000	1/1.13^15	=	0.159890753	0.159890752975119*28000000	=	4476941.1
16	28000000	1/1.13^16	=	0.141496242	0.141496241570902*28000000	=	3961894.8
17	28000000	1/1.13^17	=	0.125217913	0.125217912894603*28000000	=	3506101.6
18	28000000	1/1.13^18	=	0.110812312	0.110812312296109*28000000	=	3102744.7
19	28000000	1/1.13^19	=	0.098063993	0.0980639931823976*28000000	=	2745791.8
20	28000000	1/1.13^20	=	0.086782295	0.0867822948516793*28000000	=	2429904.3
21	28000000	1/1.13^21	=	0.076798491	0.0767984910191852*28000000	=	2150357.7
22	28000000	1/1.13^22	=	0.067963266	0.0679632663886595*28000000	=	1902971.5
23	28000000	1/1.13^23	=	0.060144484	0.0601444835297872*28000000	=	1684045.5
24	28000000	1/1.13^24	=	0.053225207	0.0532252066635285*28000000	=	1490305.8
25	28000000	1/1.13^25	=	0.047101953	0.0471019527995827*28000000	=	1318854.7
26	28000000	1/1.13^26	=	0.041683144	0.0416831440704272*28000000	=	1167128
27	28000000	1/1.13^27	=	0.036887738	0.0368877381154223*28000000	=	1032856.7
28	28000000	1/1.13^28	=	0.032644016	0.0326440160313472*28000000	=	914032.45
29	28000000	1/1.13^29	=	0.02888851	0.0288885097622541*28000000	=	808878.27
30	28000000	1/1.13^30	=	0.025565053	0.0255650528869506*28000000	=	715821.48
					NPV= sum of discountec CF	=	168296907

So the maximum amount that can be paid is 168296907