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Mr. Kobe is contemplating acquiring Mfalme Flower Company.
Mr. Kobe is contemplating acquiring Mfalme Flower Company. Incremental cash flows arising from the acquisition are expected to be the following:
Average of years
Net cash flows
1 ? 5
6 ? 10
11 ? x
Mfalme has an all-equity capital structure. Its beta is 0.8 based on the past 60 months of data relating its excess returns to that of the market. The risk free rate is 9% and the expected return on the market portfolio is 14%.
What is the maximum price that Kobe should pay for Mfalme? (10 marks)
This question was answered on: Feb 21, 2020
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