Question
The Clark Corporation desires to expand. It is considering a cash purchase of Kent Enterprises for $2.6 million. Kent has a $670,000 tax loss carryforward
The Clark Corporation desires to expand. It is considering a cash purchase of Kent Enterprises for $2.6 million. Kent has a $670,000 tax loss carryforward that could be used immediately by the Clark Corporation, which is paying taxes at the rate of 35 percent. Kent will provide $370,000 per year in cash flow (aftertax income plus depreciation) for the next 25 years. The discount rate is 13 percent. Use Appendix D as an approximate answer, but calculate your final answer using the formula and financial calculator methods.
a. Compute the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.)
b. Should the merger be undertaken?
multiple choice
-
Yes
-
No
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