Problem:
Southern Tours is considering acquiring Holiday Vacations. Management believes Holiday Vacations can generate cash flows of $187,000, $220,000, and $245,000 over the next three years, respectively. After that time, they feel the business will be worthless. Southern Tours has determined that a 13.5 percent rate of return is applicable to this potential acquisition.
Required:
Question: What is Southern Tours willing to pay today to acquire Holiday Vacations?
- $503,098
- $638,407
- $601,226
- $538,615
- $545,920