5. Grandma’s Cookies Inc. is considering acquiring Mother’s Baked Goods Inc. After consideration of all benefits, synergies, and tax effects, Grandma (originally a finance major) has estimated that the incremental cash flows from the acquisition will be about $150,000 per year for 15 years. (Grandma is financially conservative and reluctant to base decisions on benefits projected farther into the future.) She has also estimated the project’s discount rate, appropriately adjusted for risk, at 12%.

Mother’s is a privately owned firm with 20,000 shares of stock outstanding.

Grandma is confident that the owners will sell for $50 a share, but not for less.

Should Grandma acquire Mother’s?