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Stubborn Motors, Incorporated, is asking a price of $10.5 million to be purchased by Rubber Tire Motor Corporation. Rubber Tire. currently has total cash flows
Stubborn Motors, Incorporated, is asking a price of $10.5 million to be purchased by Rubber Tire Motor Corporation. Rubber Tire. currently has total cash flows of $6 million which are growing at 1 percent annually. Managers estimate that because of synergies the merged firm's cash flows will increase by 4 percent for the first four years following the merger. After the first four years. incremental cash flows will grow at a rate of 3 percent annually. The WACC for the merged firms is 975 percent. Calculate the NPV of the merger. Should Rubber Tire Motor Corporation agree to acquire Stubborn Motors for the asking price of $10.5 million? Multiple Choice. Agree to the merger because the NPV =52.32 million. Agree to the merger because the NPV =$1.03 million
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