Ling Mining is considering the acquisition of Lunox Mining at a cash price of P6,000,000. The...

 

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Ling Mining is considering the acquisition of Lunox Mining at a cash price of P6,000,000. The primary motivation for Ling's purchase of Lunox is for a special piece of drilling equipment that it believes will generate after-tax cash flows of P2,000,000 per year during the next 5 years. Lunox Mining has liabilities of P9,000,000 and Ling estimates that it can sell the remaining assets at P6,500,000. Ling will use a 20 percent cost of capital for evaluating the acquisition. Required: What is the net value of the special drilling equipment? Ling Mining is considering the acquisition of Lunox Mining at a cash price of P6,000,000. The primary motivation for Ling's purchase of Lunox is for a special piece of drilling equipment that it believes will generate after-tax cash flows of P2,000,000 per year during the next 5 years. Lunox Mining has liabilities of P9,000,000 and Ling estimates that it can sell the remaining assets at P6,500,000. Ling will use a 20 percent cost of capital for evaluating the acquisition. Required: What is the net value of the special drilling equipment?

Answer rating: 100% (QA)

The initial investment in the special drilling equipment cash pr... View the full answer