None Firms A and B are competitors. Both have similar assets and business risks and are all-equityfirms. Firm A has after-tax cash flow of $20,000 per year forever and firm B has after-tax cashflow of $150,000 per year forever. If the two firms merge, the perpetual after-tax cash flow willbe $179,000. If the appropriate discount rate is 15% what is the MOST B will pay for A? a. $193,333 b. $9,000 c $20,000 d. $60,000 e. $133,333

To solve this problem, we need to calculate the present value of the perpetual cash flows for Firm…

Answered: Firms A and B are competitors. Both…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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