Mergernbsp analysis with terminal valuesharrison ltd is

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Merger  Analysis with Terminal Values

Harrison Ltd. Is considering acquiring Pugs International Inc. Pugs had cash flows of $15 million last year and has 2.5 million shares outstanding which are currently selling at $29 per share. The discount rate for analysis has been correctly estimated at 14%.

a. How much should Harrison be willing to pay for Pugs in total and per share if the firm is not expected to grow significantly and management insists that acquisitions be justified by no more than 10 years of projected cash flows?

b. Make the same calculations assuming management will consider an indefinite stream of cash flows.

c. Make the calculations once again assuming management is very aggressive and is willing to assume Pugs income will go on forever growing at a rate of 3% per year.

d. Comment on the results of parts a, b, and c.

Reference no: EM13381189

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