An acquiring company (A) has the opportunity to buy a target company (T). The target company can be purchased for $100 000. The relevant net cash flows that will be received from the investment in the target company will be $20 000 for the next 20 years, after which no cash flows will be forthcoming. The relevant cost of capital for analyzing the target is 10%.

Calculate the NPV and explain whether the Merger looks favorable.

5. Company A is considering the purchase of target company T. The projected year 1 revenue is $ 50000, and this is projected to grow at a 20% rate for 3 years and then level off. From historical patterns and economic outlook, investment bankers project costs of sales to be 80% of revenue. Corporate tax is 30%. Net working capital is 4% of revenues, and net property, plant and equipment are 6% of revenues. For the target company, total capital investment of 15 cents is required for each dollar of revenues.

Prepare the Spreadsheet projects of Company T and Compute the present value to determine the value of the target at the end of year 4. 6. Lion's Ltd is considering the purchase of South Seas Ltd.