Question
J & J enterprises is considering a cash acquisition of patterson steel company for $4,500,000. Patterson will provide the following pattern of cash inflows and
J & J enterprises is considering a cash acquisition of patterson steel company for $4,500,000. Patterson will provide the following pattern of cash inflows and synergistic benefits for the next 20 years. There is no tax loss carryfoward.
| Years | |||
| 1-5 | 6-15 | 16-25 | |
| Cash inflow (aftertax) | $490,000 | $650,000 | $850,000 |
| Synergistic benefits (aftertax) | 45,000 | 65,000 | 75,000 |
The cost of capital for the acquiring firm is 12 percent. Compute the net present value. Should the merger be undertaken?
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Applied Conic Finance
Authors: Dilip Madan, Wim Schoutens
1st Edition
1107151694, 978-1107151697
