a. Your company is evaluating a potential acquisition with annual revenue of $500 million, operating profit...

a. Your company is evaluating a potential acquisition with annual revenue of $500 million, operating profit of $50 million and after-tax cash flow of $30 million. Your corporate development team believes it has found synergies that can save $50 million in costs which can be realized by year 3. Assuming a 10% weighted average cost of capital what is the maximum price your company should pay for this acquisition?
b. Suppose the potential deal in a question is for a highly cyclical company at peak earnings. If there is a 40% probability of recession by Year 3 and the impact would be negative by 25% of current profit estimates how does this change your answer for a?

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jeff jeffy answered 6 months ago

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