J &J; Enterprises is considering a cash acquisition of Patterson Steel Company f

Question

J &J; Enterprises is considering a cash acquisition of Patterson Steel Company for $5,600,000. Patterson will provide the following pattern of cash inflows and synergistic benefits for the next 20 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 1-5 6-15 16-20 S600,000 $760,000$960.000 76,000 Cash inflow (aftertax) 86,000 Synergistic benefits (aftertax) The cost of capital for the acquiring firm is 14 percent. a. Compute the net present value. (Negative amount should be indicated by a minus sign. Do not 56,000 round intermediate calculations. Round your answer to 2 decimal places.) Net present value b. Should the merger be undertaken? No ?Yes

Explanation / Answer

A) NPV = - 580015.29

b) No the merger shoudl not be undertaken because NPV is negative .

Best of Luck. God Bless

A B C D E F G H I J K L M N O P Q R S T U 1 Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2 Cash Acquisition -5600000 3 Cash Inflow 600000 600000 600000 600000 600000 760000 760000 760000 760000 760000 760000 760000 760000 760000 760000 960000 960000 960000 960000 960000 4 Synergistic Benefit 56000 56000 56000 56000 56000 76000 76000 76000 76000 76000 76000 76000 76000 76000 76000 86000 86000 86000 86000 86000 5 Total Value -5600000 656000 656000 656000 656000 656000 836000 836000 836000 836000 836000 836000 836000 836000 836000 836000 1046000 1046000 1046000 1046000 1046000 6 Discount Rate 14% NPV -580015.29 NPV(A6,B5:U5)+A2

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.