Worldwide Scientific Equipment is considering a cash acquisition of Medical Labs for $1.7 million. Medical Labs will
Question:
Worldwide Scientific Equipment is considering a cash acquisition of Medical Labs for $1.7 million. Medical Labs will provide the following pattern of cash inflows and synergistic benefits for the next 25 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 16–25 Cash inflow (aftertax)$160,000 $180,000 $220,000 Synergistic benefits (aftertax)21,000 31,000 51,000
The cost of capital for the acquiring firm is 12 percent.
a. Compute the net present value. (Negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your final answer to 2 decimal places.)
b. Should the merger be undertaken?
Foundations of Financial Management
ISBN: 978-1259194078
15th edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen