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What is the value of the target firm to the acquiring firm

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Problem 1: Firm X plans to acquire Firm Y. Firm X has yearly after-tax cash flows of RM 80 million, while Firm Y has yearly after-tax cash flows of RM 35 million. These cash flows are expected to be sustainable perpetually. If the two firms merged, the aftertax cash flow of the combined entity would reach RM 130 million. Using a cost of capital of 10%, what is the value of the target firm to the acquiring firm?

Reference no: EM132942803

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