The Charles Corporation desires to expand. It is considering a cash purchase of Atlas Enterprises for $2,100,000. The Atlas Corporation has a $620,000 tax loss carry-forward that could be used immediately by the Charles Corporation, which is paying taxes at the rate of 40 percent. Atlas will provide $320,000 per year in cash flow (aftertax income plus CCA) for the next 16 years.

a. If the Charles Corporation has a cost of capital of 12 percent. compute the net present value. (Use a Financial calculator to arrive at the answers. Negative answer should be indicated by a minus sign. Round the final answer to the nearest whole dollar.)

Net present value $

b. Should the merger be undertaken?

multiple choice 2

• Yes

• No