Several years ago, your firm paid $ 25,000,000 for Clean Tooth, a small, high- technology company that manufactures laser- based tooth cleaning equipment. Unfortunately, due to extensive production line and sales resistance problems, the company is considering selling the division as part of a “modernization program.” Based on current information, the following are the estimated accounting numbers if the company continues to operate the division:

Estimated cash receipts, next 10 years $ 500,000/ year
Estimated cash expenditures, next 10 years $ 450,000/ year
Current offer for the division from another firm $ 250,000

1. The firm is in the 0 percent tax bracket (no income taxes).
2. There are no additional expenses associated with the sale.
3. After year 10, the division will have sales (and expenses) of 0.
4. Estimates are completely certain. Should the firm sell the division for $ 250,000?

  • CreatedDecember 15, 2014
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