Problem $20-7$ Valuation of a Merger $($LG$20-2)$

Stubborn Motors, Incorporatedis asking a price of $$92$ million to be purchased by Rubber Tire Motor Corporation Stubborn Motors

currently has total cash flows of $$4$ million that are expected to grow indefinitely by $1$ percent annually. Managers estimate that,

because of synergies, the merged firm's cash flows will increase by $$6$ million in the first year after the merger and that these cash

flows will grow by an additional $6$ percent in years $2$ through $4$ following the merger. After the first four years, these incremental cash

flows will grow at a rate of $1$ percent annually. The WACC for the merged firms is $14$ percent.

Calculate the NPV of the merger. Should Rubber Tire Motor Corporation agree to acquire Stubborn Motors for the asking price of $$92$

million?

Note: Enter your answer in millions. Negative amount should be indicated by a minus sign. Do not round intermediate calculations

and round your final answer to $2$ decimal places.