In: Finance
J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,400,000. Patterson will provide the following pattern of cash inflows and synergistic benefits for the next 20 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 | 16–20 | |||||||
Cash inflow (aftertax) | $ | 480,000 | $ | 640,000 | $ | 840,000 | |||
Synergistic benefits (aftertax) | 44,000 | 64,000 | 74,000 | ||||||
The cost of capital for the acquiring firm is 11 percent.
a. Compute the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. Should the merger be undertaken?
Yes
No