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General Manufacturing Company consists of several divisions, one of which is the Transportation Division. The company has decided to dispose of this division because it
General Manufacturing Company consists of several divisions, one of which is the Transportation Division. The company has decided to dispose of this division because it no longer fits the company's longterm strategy. An offer of $ has been received from a prospective buyer. If General retained the division, the company would operate the division for only ten years, after which the division would no longer be needed and would be sold for $ If the company retains the division, an immediate investment of $ would need to be made to update equipment to current standards. Annual net operating cash flows would be $ if the division is retained. The company's discount rate is Ignore income taxes in this problem.
Required:
Using the net present value method, determine whether General Manufacturing should accept or reject the offer made by the potential buyer.
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