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[solution] » Mr. Kobe is contemplating acquiring Mfalme Flower Company.

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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

Sh. millions

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)


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