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Problem 9-4 The following table shows the projected free cash flows of an acquisition target....

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Accounting

Problem 9-4 The following table shows the projected free cash flows of an acquisition target. The potential acquirer wants to estimate its maximum acquisition price at an 8 percent discount rate and a terminal value in year 5 based on the perpetual growth equation with a 4 percent perpetual growth rate. Year Free cash flow Maximum acquisition price 1
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In July 2007, News Corporation entered into an ageement to purchase all of the outstanding shares of Dow Jones and Company for $61 per share. Immediately prior to the News Corporation bid, the shares of Dow Jones traded at $36 per share. The number of outstanding shares at the time of the announcement was 81 million. The book value of interest-bearing liablitites on the balance sheet of Dow Jones was $1.46 bilion. a. Estimate the cost of this acquisition to the shareholders of News Corporation b. What value did News Corporation place on the control of Dow Jones and Company? Note: For all requirements, enter your answers in billions rounded to 2 decimal places

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