A-1 Airlines Laura Taylor, the CFO of A-1 Airlines, was considering the acquisition of Alpha Transport Supply Company. The asking price was $100 million. A-1 Airlines was in a 30 percent tax bracket. The purchase was to be for cash and Laura intended to use capital budgeting procedures in the analysis. Alpha's Past Performance Last year, Alpha had the following financial data. Laura's Projections She was doing a 10-year analysis and expected cash flow to grow by 12% each of the remaining 9 years. She used 10% as the discount rate. She further projected she could sell Alpha Transport for $140 million after 10 years and pay 15% tax on the proceeds. Sales $30,000,000 Cost of goods sold 18,000,000 Gross profit $12,000,000 Selling and administrative expense 3,000,000 Depreciation expense 4,000,000 Earnings before taxes $5,000,000 Taxes (30%) 1,500,000 Earnings after taxes $3,500,000 Plus depreciation 4,000,000 Cash flow $7,500,000 Sales +11% Cost of goods sold +8% Selling and administrative expense +20% Depreciation +10% Required 1. Project cash flow for the 1st year after the merger. 2. Based on the 12 percent growth rate, project cash flow for the remaining 9 years. Round to the nearest dollar. 3. Calculate the Net Present value. Explain 4. Compute the IRR. Explain your findings. 5. Calculate the sales price proceeds after 10 years. Round to the nearest dollar. 6. Should the company be purchased? 7. What other considerations should she consider when making her decision (economic, risk, corporate governance)