Question
Cautionary Tales, Inc., is considering the acquisition of Danger Corp. at its asking price of $160,000. Cautionary would immediately sell some of Danger's assets for
Cautionary Tales, Inc., is considering the acquisition of Danger Corp. at its asking price of $160,000. Cautionary would immediately sell some of Danger's assets for $16,000 if it makes the acquisition. Danger has a cash balance of $1,600 at the time of the acquisition. If Cautionary believes it can generate after-tax cash inflows of $30,000 per year for the next 8 years from the Danger acquisition, should the firm make the acquisition? Base your recommendation on the net present value of the outlay using Cautionary's 8% cost of capital
The net present value of the acquisition is $ . (Round to the nearest dollar.)
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