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Footnotes 1 . I Inselbag and H. Kaufold, “On the Equivalence of the APV and Weighted Average Cost of Capital Approaches to Firm Valuation,” unpublished manuscript, Wharton School, December 1988. 2 . Mergers Acquisitions, Profile tables, various issues. 3 . Wall Street Journal, September 26, 1988, “Kroger Rejects Offers, Intends to Restructure,” p. 4. 4 . We have chosen a three‐year horizon to keep our illustration as simple as possible. It is common for LBO practitioners to project cash flows over a five to ten year period. 5 . If Conglomerate could realize such synergies from the acquisition of B&G, we could easily include them in our valuation analysis by appropriately revising the cash flows given in Exhibit 1. We assume these gains are insignificant to focus on the potential financial synergies alone. 6 . This point has been made by J. Miles and R. Ezzell, “The Weighted Average Cost of Capital, Perfect Capital Markets and Project Life: A Clarification,” Journal of Financial and Quantitative Analysis (September 1980), pp. 719–730. 7 . This statement holds, of course, only if the asset risk of the projects the firm chooses also remains constant. 8 . With a steady state free
Journal of Applied Corporate Finance – Wiley
Published: Jun 1, 1989
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