Elliott Mfg. is considering acquiring Fox Inc. Fox's cash flows have been estimated in detail for the next three years and are $40M, $45M and $50M respectively. A terminal value consistent with that estimate has been calculated at $700M. The risk-adjusted discount rate for analysis is 12%.
a. In total, what should Fox be worth to Elliott?
b. If Fox, Inc. has 12 million shares outstanding, what is the most Elliott should offer, per share, for its stock?
c. What growth rate did Elliott assume in calculating Fox's terminal value?
d. If the growth rate assumption changes to 8%, what is the new maximum offer?

Question

Elliott Mfg. is considering acquiring Fox Inc. Fox's cash flows have been estimated in detail for the next three years and are $40M, $45M and $50M respectively. A terminal value consistent with that estimate has been calculated at $700M. The risk-adjusted discount rate for analysis is 12%. 
a. In total, what should Fox be worth to Elliott? 
b. If Fox, Inc. has 12 million shares outstanding, what is the most Elliott should offer, per share, for its stock? 
c. What growth rate did Elliott assume in calculating Fox's terminal value? 
d. If the growth rate assumption changes to 8%, what is the new maximum offer?

Quizplus · Accepted Answer

The Answer of Elliott Mfg. is considering acquiring Fox Inc. Fox's cash flows have been estimated in detail for the next three years and are $40M, $45M and $50M respectively. A terminal value consistent with that estimate has been calculated at $700M. The risk-adjusted discount rate for analysis is 12%. 
a. In total, what should Fox be worth to Elliott? 
b. If Fox, Inc. has 12 million shares outstanding, what is the most Elliott should offer, per share, for its stock? 
c. What growth rate did Elliott assume in calculating Fox's terminal value? 
d. If the growth rate assumption changes to 8%, what is the new maximum offer?