Acquirer Company's Management Believes That There Is a 60 Percent

question 48

Essay

Acquirer Company's management believes that there is a 60 percent chance that Target Company's free cash flow to the firm will grow at 20 percent per year during the next five years from this year's level of $5 million. Sustainable growth beyond the fifth year is estimated at 4 percent per year. However, they also believe that there is a 40 percent chance that cash flow will grow at half that annual rate during the next five years and then at a 4 percent rate thereafter. The discount rate is estimated to be 15 percent during the high growth period and 12 percent during the sustainable growth period for each scenario. What is the expected value of Target Company?

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Definitions:

Exposure

The state of being subject to or presented with a particular environment, situation, or condition, which can lead to various psychological or physiological responses.

Marijuana

A psychoactive drug from the Cannabis plant, used for medical or recreational purposes.

Vulnerable

Susceptible to physical or emotional attack or harm.

Developing Nervous System

The growth and maturation process of the nervous system, which includes the formation of neural connections and refinement of neural pathways.