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b) Your company is considering an acquisition of Sun Ltd whose WACC is 10%. Your company's purchase of Sun Ltd will cost 100 million, and
b) Your company is considering an acquisition of Sun Ltd whose WACC is 10%. Your company's purchase of Sun Ltd will cost 100 million, and will generate cash flows that start at $9 million in Year 1 and then grow at 3% per year forever. The cost of environmental clean-up is expected to be $300,000 per year starting from Year 5 in perpetuity. What is the NPV of the acquisition? Should your company go ahead with the acquisition and why? (6 marks)
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