Question
Benson Oil is being considered for acquisition by Dodd Oil. The combination, Dodd believes, would increase its cash inflows by $30,000 for each of the
Benson Oil is being considered for acquisition by Dodd Oil. The combination, Dodd believes, would increase its cash inflows by $30,000 for each of the next 5 years and by $56,000 for each of the following 5 years. Benson has high financial leverage, and Dodd can expect its cost of capital to increase from 12 % to 15 % if the merger is undertaken. The cash price of Benson is $125,000 .
a. The NPV of the merger is $____.
Would you recommend the merger? YES OR NO
b. The NPV of purchasing the new equipment is $____.
Which alternative would you recommend?
A.) Purchase new equipment
B.) Acquire Benson Oil
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