Use BSL's Actual Financial Data for 2010 and Its Projections

question 1

Multiple Choice

Use BSL's actual financial data for 2010 and its projections for 2011 to 2015 as shown above.Assume that in the years after 2015 the company's free cash flow grows 4 percent per year in perpetuity.The WACC of the acquiring firm (Macklemore) is 8.0 percent,BSL's WACC is 11.5 percent,and the average of the two companies' WACCs,weighted by sales,is 8.2 percent.What is the maximum acquisition price (in $ millions) Macklemore should pay to acquire BSL's equity at the end of 2010?

• A) $1,976.49
• B) $2,501.49
• C) $2,877.49
• D) $4,195.49
• E) $4,571.49

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Definitions:

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, indicating the efficiency of resource utilization beyond just financial gain.

Marginal Costs

The cost of producing a subsequent unit of a product or service.

Long Run

The long run is a period in economics where all inputs or factors of production can be varied, allowing firms to adjust fully to market conditions.

Economic Profit

The split between total revenue generation and total cost accrual, encompassing both declared and understood costs.