The CEO of the company you chose for your stock projects this semester asked you to analyze the possibility of acquiring a smaller business operation from another company.

The purchase will cost $69 million in year zero and will also require $2.5 million of net working capital. The company is using MACRS 3-years depreciation and a book value is $9 million. Assume you can sell the business in four 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 13% cost of capital.

(1) Compute the cash flows and depreciation for the project.

(2) Use the cost of capital from your firm (WACC - Stock Project 3) and a payback benchmark of 2 years. Compute the following decision statistics and make accept/reject conclusion.

A. NPV

B. IRR

C. Payback

D. Profitability index

(3) Make your recommendation to the CEO, explaining why and what decision should be made with regards to acquiring small business operation from another company.

You can use the NPV() function and IRR() function to compute the NPV and IRR of the project.