Carlisle obtain to earn its cost of capital

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Reference no: EM131568097

Carlisle Enterprises, a specialty pharmaceutical manufacturer, has been losing market share for three years since several key patents have expired. The free cash flow to the firm in 2002 was $10 million. This figure is expected to decline rapidly as more competitive generic drugs enter the market. Projected cash flows for the next five years are $7.5 million, $6.5 million, $4.5 million, $1.5 million, and $.75 million. Cash flow after the fifth year is expected to decrease by 2 percent indefinitely. The firm’s board has decided to sell the firm to a larger pharmaceutical company interested in using Carlisle’s product offering to fill gaps in its own product offering until it can develop similar drugs. Carlisle’s cost of capital is 12%. What purchase price must Carlisle obtain to earn its cost of capital? Make sure to show your work.

Reference no: EM131568097

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