Worldwide Scientific Equipment is considering a cash acquisition of Medical Labs
ID: 2802993 • Letter: W
Question
Worldwide Scientific Equipment is considering a cash acquisition of Medical Labs for $3.5 million. Medical Labs will provide the following pattern of cash inflows and synergistic benefits for the next 25 years. There is no tax loss carryforward. Use Appendix D as an approximate answer, but calculate your final answer using the formula and financial calculator methods.
Years
The cost of capital for the acquiring firm is 11 percent.
a. Compute the net present value. (Negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Net Present value
Years
1–5 6–15 16–25 Cash inflow (aftertax) $340,000 $360,000 $400,000 Synergistic benefits (aftertax) 39,000 49,000 69,000Explanation / Answer
Year Cash inflow Synergistic benefits Total cash flow cost of capital Present value of cash flows 0 -$35,00,000 -$35,00,000 $1 -$35,00,000 1 $3,40,000 $39,000 $3,79,000 $0.90090 $3,41,441 2 $3,40,000 $39,000 $3,79,000 $0.81162 $3,07,605 3 $3,40,000 $39,000 $3,79,000 $0.73119 $2,77,122 4 $3,40,000 $39,000 $3,79,000 $0.65873 $2,49,659 5 $3,40,000 $39,000 $3,79,000 $0.59345 $2,24,918 6 $3,60,000 $49,000 $4,09,000 $0.53464 $2,18,668 7 $3,60,000 $49,000 $4,09,000 $0.48166 $1,96,998 8 $3,60,000 $49,000 $4,09,000 $0.43393 $1,77,476 9 $3,60,000 $49,000 $4,09,000 $0.39092 $1,59,888 10 $3,60,000 $49,000 $4,09,000 $0.35218 $1,44,043 11 $3,60,000 $49,000 $4,09,000 $0.31728 $1,29,769 12 $3,60,000 $49,000 $4,09,000 $0.28584 $1,16,909 13 $3,60,000 $49,000 $4,09,000 $0.25751 $1,05,323 14 $3,60,000 $49,000 $4,09,000 $0.23199 $94,886 15 $3,60,000 $49,000 $4,09,000 $0.20900 $85,483 16 $4,00,000 $69,000 $4,69,000 $0.18829 $88,309 17 $4,00,000 $69,000 $4,69,000 $0.16963 $79,558 18 $4,00,000 $69,000 $4,69,000 $0.15282 $71,674 19 $4,00,000 $69,000 $4,69,000 $0.13768 $64,571 20 $4,00,000 $69,000 $4,69,000 $0.12403 $58,172 21 $4,00,000 $69,000 $4,69,000 $0.11174 $52,407 22 $4,00,000 $69,000 $4,69,000 $0.10067 $47,214 23 $4,00,000 $69,000 $4,69,000 $0.09069 $42,535 24 $4,00,000 $69,000 $4,69,000 $0.08170 $38,320 25 $4,00,000 $69,000 $4,69,000 $0.07361 $34,522 NPV -$92,530.84
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