Earlier today I posted the problem listed below and I received the answers in the below screenshot However, I am confused because I was under the impression that this problem required the calculation of the net present value of the cash inflows I'm I wrong in thinking that NPV should be calculated or is the answer that was provided incorrect THE PROBLEM I POSTED Cash acquisition decision Solar Solutions is being considered for acquisition by Energy Resource Energy Resource believes the combination would increase its cash inflows by $75,000 for each of the next five years and by $150,000 for each of the following five years Solar Solutions has high financial leverage and Energy Resource can expect its cost of capital to increase from 11 to 14 if the merger is undertaken The cash price of Solar Solutions is $375,000 1) Would you recommend the merger 2) Would you recommend the merger if Energy Resource could use the $375,000 to purchase equipment that will return cash inflows of $120,000 per year for each of the next 10 years 3) If the cost of capital did not change with the merger, would your decision in part b be different Explain THE ANSWERS THAT WERE PROVIDED The decision to acquire Solar Solutions should be based on the expected cash flows and the cost of capital In this case, the expected cash inflows over the 10 year period exceed the cash price of $375,000, which makes the merger attractive If Energy Resource could purchase equipment that would return cash inflows of $120,000 per year for each of the next 10 years, the expected cash inflows would exceed the cash price of Solar Solutions even more, making the merger even more attractive If the cost of capital did not change with the merger, the expected cash flows would still make the merger attractive Step 2 3 1) Yes, I would recommend the merger The expected cash inflows over the 10 year period total $1,125,000, which exceeds the cash price of $375,000 2) Yes, I would recommend the merger The expected cash inflows from the purchase of equipment total $1,200,000, which is significantly more than the cash price of $375,000 Final answer 3) No, my decision in part b would not be different Even if the cost of capital did not change with the merger, the expected cash inflows from the purchase of equipment still exceed the cash price of Solar Solutions

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Earlier today I posted the problem listed below and I received the answers in the below screenshot. However, I am confused because I was under

Earlier today I posted the problem listed below and I received the answers in the below screenshot. However, I am confused because I was under the impression that this problem required the calculation of the net present value of the cash inflows. I'm I wrong in thinking that NPV should be calculated or is the answer that was provided incorrect?

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THE PROBLEM I POSTED:

Cash acquisition decision Solar Solutions is being considered for acquisition by Energy Resource. Energy Resource believes the combination would increase its cash inflows by $75,000 for each of the next five years and by $150,000 for each of the following five years. Solar Solutions has high financial leverage and Energy Resource can expect its cost of capital to increase from 11% to 14% if the merger is undertaken. The cash price of Solar Solutions is $375,000.

1) Would you recommend the merger?

2) Would you recommend the merger if Energy Resource could use the $375,000 to purchase equipment that will return cash inflows of $120,000 per year for each of the next 10 years?

3) If the cost of capital did not change with the merger, would your decision in part b be different? Explain.

THE ANSWERS THAT WERE PROVIDED:

image text in transcribed

The decision to acquire Solar Solutions should be based on the expected cash flows and the cost of capital. In this case, the expected cash inflows over the 10-year period exceed the cash price of $375,000, which makes the merger attractive. If Energy Resource could purchase equipment that would return cash inflows of $120,000 per year for each of the next 10 years, the expected cash inflows would exceed the cash price of Solar Solutions even more, making the merger even more attractive. If the cost of capital did not change with the merger, the expected cash flows would still make the merger attractive. Step 2/3 1) Yes, I would recommend the merger. The expected cash inflows over the 10-year period total $1,125,000, which exceeds the cash price of $375,000. 2) Yes, I would recommend the merger. The expected cash inflows from the purchase of equipment total $1,200,000, which is significantly more than the cash price of $375,000. Final answer 3) No, my decision in part b would not be different. Even if the cost of capital did not change with the merger, the expected cash inflows from the purchase of equipment still exceed the cash price of Solar Solutions