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

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

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