Question
J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,100,000. Patterson will provide the following pattern of cash inflows and
J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,100,000. Patterson will provide the following pattern of cash inflows and synergistic benefits for the next 20 years. There is no tax loss carryforward. Use Appendix D as an approximate answer, but calculate your final answer using the formula and financial calculator methods.
| Years | |||
|---|---|---|---|
| 1 to 5 | 6 to 15 | 16 to 20 | |
| Cash inflow (aftertax) | $ 450,000 | $ 610,000 | $ 810,000 |
| Synergistic benefits (aftertax) | 41,000 | 61,000 | 71,000 |
The cost of capital for the acquiring firm is 11 percent.
a. Compute the net present value.
Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.
Net present value: ______
b. Should the merger be undertaken?
multiple choice
Yes
No
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
13th edition
1439078106, 111197375X, 9781439078105, 9781111973759, 978-1439078099
