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 $8.5 million, $7.0 million, $5 million, $2.0 million, and $.5 million. Cash flow after the fifth year is expected to be negligible. 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 15%. What purchase price must Carlisle obtain to earn its cost of capital?

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The Answer of 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 $8.5 million, $7.0 million, $5 million, $2.0 million, and $.5 million. Cash flow after the fifth year is expected to be negligible. 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 15%. What purchase price must Carlisle obtain to earn its cost of capital?

Carlisle Enterprises, a Specialty Pharmaceutical Manufacturer, Has Been Losing Market