According to James Olley of the London Evening Standard, Real Madrid want slightly more for striker Gonzalo Higuain than initially believed, though the price should still be in Arsenal's range (in theory, at least). The belief is that Arsenal place his value closer to £20 million, but Madrid want £25.5 million instead.
Initial reports from last month (via John Cross) had Arsenal's valuation at around £18 million, with Madrid asking for £22 million. It's unclear whether one report or the other is incorrect, or if things have changed. I would guess that as the situation develops, things like this become less conceptual and more crystallized, so it's more likely that the initial quote was more a speculative one, while this is more grounded.
This isn't a price that, alone, should put Arsenal off - particularly if they have the money to spend that we've been led to believe they do. Juventus have met with Madrid for talks but evidently offered only £18.7 million, while there's been no amount reported from Arsenal's initial contact. I would bet that if Juventus are the only other serious suitor for Higuain's services, Arsenal still stands a good chance of being able to land him, if the interest is legitimate as it seems.