The target of an acquisition generates cash flows of $9 million

| June 4, 2016

Question
The target of an acquisition generates cash flows of $9 million per year with a risk level consistent with a return on equity of 14.5%.

How much should an acquirer be willing to pay if it won’t consider more than five years of future earnings in setting a price? Round the answer to the nearest whole dollar.$
What is the per share price if the target has 300,000 shares of common stock outstanding? Round the answer to the nearest cent.$ per share
Assume the acquirer intends to pay for the acquisition with its own stock, which is currently selling for $36 per share. How many shares must be offered for each share of the target’s stock? Round the answer to the nearest whole number.shares

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