Question
The CEO of a company asked you to analyze the possibility of acquiring a smaller business operation from another company. The purchase will cost $72
The CEO of a company asked you to analyze the possibility of acquiring a smaller business operation from another company. The purchase will cost $72 million in year zero and will also require $3 million of net working capital. The company is using MACRS 3-year depreciation and a book value is $8 million. Assume you can sell the business in 4 years for $13 million. The new business operation will generate $72 million in revenue each year which will take $41 million in costs annually. Use the 21% marginal tax rate and 11% cost of capital. Compute the cash flows and depreciation for the project.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started