You are an analyst valuing Palm and Sun Industries for a possible acquisition. Compute the Adjusted Present Value.
The buyer wants cash flows evaluated for 20 years and assumes a terminal value a $50 M to be discounted at 15%. Ignore taxes.
Annual cash flow from continuing operations $ 97 M. Discount at 15%.
Annual cash flow from product line expansion $ 3 M. Discount at 18%.
Annual cash flow from tax savings $ 8 M. The interest rate on debt is 6% and the tax rate is 40%. You do not need to calculate a terminal value for tax savings.