Background Note | HBS Case Collection | January 1989 (Revised October 1993)

Note: Valuing a Business Acquisition Opportunity

by William E. Fruhan Jr.

Abstract

Describes how to value an acquisition opportunity as a capital budgeting problem. Cash flows are discounted at the cost of capital and debt is deducted to value the equity capital of the target company. A key contribution of the note is the discussion of five methods for establishing a terminal value for future cash flows extending beyond the normal planning horizon.

Keywords: Valuation; Acquisition; Opportunities;

Citation:

Fruhan, William E., Jr. "Note: Valuing a Business Acquisition Opportunity." Harvard Business School Background Note 289-039, January 1989. (Revised October 1993.)