Question
A Company is planning to acquire R Company. It is estimated that R Company will provide incremental net income after taxes of Rs.2 million in
A Company is planning to acquire R Company. It is estimated that R Company will provide incremental net income after taxes of Rs.2 million in the first year, Rs.3 million in the second year, Rs.4 million in the third year, Rs.5 million in each of years 4 through 6, and Rs.6 million thereafter. Capital investments, required to be made by A Company, are estimated to be Rs.5 million for the first two years and Rs.4 million thereafter. Related depreciation charges are estimated to be Rs.3 million in the first year and Rs.4 million thereafter. The overall required rate of return is 15%. Calculate the present value of acquisition on the basis of estimates provided.
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