Question
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.)
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