Question
J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,900,000. Patterson will provide the following pattern of cash inflows and
J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,900,000. 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 | |||
15 | 615 | 1620 | |
Cash inflow (aftertax) | $530,000 | $690,000 | $890,000 |
Synergistic benefits (aftertax) | 49,000 | 69,000 | 79,000 |
The cost of capital for the acquiring firm is 14 percent.
a. Compute the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. Should the merger be undertaken?
No | |
Yes |
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