Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Cautionary Tales, Inc., is considering the acquisition of Danger Corp. at its asking price of $190 comma 000190,000. Cautionary would immediately sell some of Danger's

Cautionary Tales, Inc., is considering the acquisition of Danger Corp. at its asking price of

$190 comma 000190,000.

Cautionary would immediately sell some of Danger's assets for

$19 comma 00019,000

if it makes the acquisition. Danger has a cash balance of

$1 comma 9001,900

at the time of the acquisition. If Cautionary believes it can generateafter-tax cash inflows of

$26 comma 00026,000

per year for the next

1010

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

88%

cost of capital.

The net present value of the acquisition is

$nothing.

(Round to the nearest dollar.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Public Finance A Contemporary Application Of Theory To Policy

Authors: David N. Hyman

9th Edition

0324537190, 9780324537192

More Books

Students also viewed these Finance questions

Question

Explain the impact of organizational culture on employees.

Answered: 1 week ago