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You are a director of a capital acquisition for Crode. One of the projects you are considering is the acquisition of Geek, a private soft
You are a director of a capital acquisition for Crode. One of the projects you are considering is the acquisition of Geek, a private soft ware for finance professors. The owner of Geek is amenable to the idea of selling his business to Crode but has certain conditions that must be met before selling. The primary condition set forth is a non negotiable, all cash purchase price of R20 million. Your project analysis team estimates that the purchase of Geek will generate the following marginal cash flows : year 1: R1 000 000.00 Year 2: R 3 000 000.00 Year 3: R5 000 000.00 Year 4: R 7 500 000.00 Year 5: R7 500 000.00 Of the R20 million in cash needed for the purchase, R5 000 000.00 is available from retained earnings, with a required return of 12%, and the remaining R15 million will come from a new debt issue yielding 8%. Crode's tax rate is 40%. Should you recommend acquisition of Geek
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