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E182 Water Worx is evaluating a proposal to acquire Plumbing Enterprises for $3 million. Water Worx knows that some of Plumbing Enterprises redundant assets can
E182
Water Worx is evaluating a proposal to acquire Plumbing Enterprises for $3 million. Water Worx knows that some of Plumbing Enterprises redundant assets can be sold for $940,000 immediately after the acquisition. Plumbing Enterprises has a cash balance of $850,000 at the time of the acquisition. Estimates indicate that Water Worx will be able to generate after-tax cash inflows of $290,000 per year for the 6 years after the acquisition. Water Worx has a 12% cost of capital. Should Water Worx make the acquisition? Explain.
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