You are an Acquisition Offer for an Investment Bank. You work in the High- Tech Investment Division of the Investment Bank. You understand high tech companies come and go very quickly. You also understand that technology changes so quickly that a long-term forecast can be worthless very quickly. It is a changing market. You have been offered the opportunity to acquire a Silicon Valley based high tech company. First you must prepare a Cash Flow Statement. The Company: The company, MERCO, makes processing chips for Intel. MERCO has signed two contracts with Intel. The first expires in two years and pays the company an annual amount of $1,924,261 and $2,212,900 for each year. The second contract was signed because Intel was happy with the work MERCO had done for it. The second contract pays annual payments of $2,544,835,$2,926,560 and $2,926,560 in years 3,4 and 5. You have estimated the cost of operations at the company to be 40%. Additionally, you believe that the ever-changing processing world requires constant upgrades to equipment. Therefore, you are projecting a new file server and workstations will need to be purchased in year three. The cost of the new system is $800,000. The asking price is $21,000,000. A laughable number. You believe a fair Cap Rate is 9.5%. Questions: 1. What is the Cash Flow in year 7? 2. Do you recommend this acquisition? Explain