Analyze the possibility of acquiring a smaller business operation from another company. The purchase will cost $90 million in year zero and will also require $2 million of net working capital. The purchase can be depreciated using four year straight line depreciation to $10 million. Assume you can sell the business in four years for $15 million. The new business operation will generate $70 million in revenue each year which will take $41million in costs annually. use the 35% marginal tax rate.

1. Compute the cash flows for the project.

2. Use the cost of capital of WACC of 5.37 % from your firm. And a payback benchmark of 3.5 years. Compute the following decision statistics and accept or reject conclusion.

a. NPV

b. IRR

c. Payback

3. Make your recommendations to the CEO and show your work.

Answer rating: 100% (QA)

1 Compute the cash flows for the project In millions Description Year 0 Year 1 Year 2 Year 3 Year 4 ... View the full answer