Cautionary Tales, Inc., is considering the acquisition of Danger Corp. at its as
ID: 2800520 • Letter: C
Question
Cautionary Tales, Inc., is considering the acquisition of Danger Corp. at its asking price of
$190 comma 000190,000.
Cautionary would immediately sell some of Danger's assets for
$19 comma 00019,000
if it makes the acquisition. Danger has a cash balance of
$1 comma 9001,900
at the time of the acquisition. If Cautionary believes it can generateafter-tax cash inflows of
$26 comma 00026,000
per year for the next
1010
years from the Danger acquisition, should the firm make the acquisition? Base your recommendation on the net present value of the outlay using Cautionary's
88%
cost of capital.
The net present value of the acquisition is
$nothing.
(Round to the nearest dollar.)
Explanation / Answer
Answer:-
Initial Investments = $ 190000
less assets sell 19000
Less Cash Balance 1900
Net Initial Investments = 169100
169100
PARTICULARS PVAF @8 % PRESENT VALUE INITAL INVESTMENT 169100 1169100
CASH INFLOWS FOR 10 YEARS 26000 6.7101 174463 NPV 5363 +Related Questions
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