Your CEO has asked you to evaluate a proposal to acquire RedTen a tech company that makes cloud analytics software and sells it on a subscription basis. Redten forecast’s that it will earn profits of $4.6 million next year(i.e year1), $5.85 million the following year(y2), $7.2 million in the third year(y3). The rate at which you discount future monies is 10% per year.
a) Create a table computation that will tell you the base price to pay today for RedTen.
b) On negotiation, RedTen says that they will accept 1/3 of the total payment today, 1/3 in a year, and 1/3 in two years. What is the actual price you are paying currently for RedTen, at the end of the entire transaction what is the total projected profit in today’s terms.
c) If you assume the correctness of the estimates in a) and the results of the negotiations in b) and lastly that you finally sell the company for 22 million in year 4, then what is the actual rate of return on your money?
