Stubborn Motors, Inc. is asking a price of $78 million to be purchased by Rubber Tire Motor Corp. Stubborn Motors currently has total cash flows of $2 million that are expected to grow indefinitely by 1 percent annually. Managers estimate that, because of synergies, the merged firms cash flows will increase by $4 million in the first year after the merger and that these cash flows will grow by an additional 4 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 11 percent.

Calculate the NPV of the merger. (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.)

NPV

million

Should Rubber Tire Motor Corporation agree to acquire Stubborn Motors for the asking price of $78 million?

• yes

• no