William E. Fruhan
Harvard Business School (289039-PDF-ENG)
January 23, 1989
Describes how an acquisition opportunity is evaluated as an investment budget problem. Cash flows are discounted using cost of capital and borrowed capital is deducted to assess the equity capital of the target company. An important contribution of the appendix is the discussion of five methods for determining a terminal value for future cash flows that go beyond the normal planning horizon.
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