Beta Corporation is considering the purchase of the linerboard mill and corrugated box plants of Royal Paper
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Question:
Beta Corporation is considering the purchase of the linerboard mill and corrugated box plants of Royal Paper for a total price of $250 million. The estimated incremental free cash flows if Beta Corp acquired the facilities can be constructed based on the information presented in the table below. Beta Corp's marginal tax rate is 35% and their after-tax cost of capital is 12%.
(in $ Millions) | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | |
EBIAT | 10.1 | 25.6 | 41.6 | 35.9 | 40.2 | 41.5 | 49.8 | 55.6 | 68.5 | 70 | |
Depreciation | 18.6 | 28.4 | 35 | 36.3 | 38.3 | 38.6 | 29.3 | 25.4 | 26.3 | 26.8 | |
CAPEX | -18.3 | -30.5 | -41.7 | -9.2 | -9.2 | -9.2 | -7.2 | -5.7 | -6.2 | -5.8 | |
NWC | -8 | -15 | -9 | -8 | -6 | -5 | -4 | -5 | -8 | -6 | |
Terminal Value | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 356.8 | |
Free Cash Flows | |||||||||||
Calculate the NPV, IRR, and payback period for the acquisition and indicate what you think Beta Corp. should do.
Related Book For
Corporate Finance A Focused Approach
ISBN: 978-1305637108
6th edition
Authors: Michael C. Ehrhardt, Eugene F. Brigham
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