Question
In: Finance
J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $5,200,000.
J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $5,200,000. 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) | $ | 560,000 | $ | 720,000 | $ | 920,000 | |||
| Synergistic benefits (aftertax) | 52,000 | 72,000 | 82,000 | ||||||
The cost of capital for the acquiring firm is 14 percent.
a. Compute the net present value.
b. Should the merger be taken?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,400,000. Patterson...
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...
J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,400,000. Patterson...
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...
J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $5,000,000. Patterson...
J & J Enterprises is considering a cash acquisition of
Patterson Steel Company for $5,000,000. Patterson will provide the
following pattern of cash inflows and synergistic benefits for the
next 20 years. There is no tax loss carry-forward.
Years
1–5
6–15
16–20
Cash inflow (aftertax)
$540,000
$700,000
$900,000
Synergistic benefits (aftertax)
$ 50,000
$ 70,000
$ 80,000
The cost of capital for the acquiring firm is 15 percent.
a. Calculate the net present value.
(Use a Financial calculator to arrive...
Patterson Company is considering two competing investments. The first is for a standard piece of production...
Patterson Company is considering two competing
investments. The first is for a standard piece of production
equipment. The second is for computer-aided manufacturing (CAM)
equipment. The investment and after-tax operating cash flows are as
follows:
Year
Standard equipment
CAM equipment
R
R
0
5 000 000
20 000 000
1
3 000 000
1 000 000
2
2 000 000
2 000 000
3
1 000 000
3 000 000
4
1 000 000
4 000 000
5
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C&J Enterprises is an all-equity firm that is considering
issuing $13.5 million of perpetual debt. The interest rate is 10%.
The firm will use the proceeds of the bond sale to repurchase
equity. The firm distributes all earnings available to stockholders
immediately as dividends. The firm will generate $3 million of
earnings before interest and taxes (EBIT) every year into
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Suppose the personal tax rate on interest income...
29. The Steel Factory is considering a project that will produce cash inflows of $44,400 a...
29. The Steel Factory is considering a project that will produce
cash inflows of $44,400 a year for five years. What is the internal
rate of return if the initial cost of the project is $135,000?
15.45 percent 19.25 percent 11.95 percent 17.65 percent 13.15
percent
15.Chance, Inc. is considering a project with an initial cost of
$1.02 million. The project will not produce any cash flows for the
first two years. Starting in year 3, the project will produce...
10-11. Your company is considering two mutually exclusive projects, J and K, whose costs and cash...
10-11. Your company is considering two mutually exclusive
projects, J and K, whose costs and cash flows are shown below:
Year
J
K
0
$(5,000)
$(5,000)
1
1,000
4,500
2
1,500
1,500
3
2,000
1,000
4
4,000
500
The projects are equally risky, and their cost of capital is
12%. You must make a recommendation, and you must base it on the
modified IRR (MIRR). What is the MIRR of the better project?
The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed acquisition of...
The president of your company, MorChuck Enterprises, has asked
you to evaluate the proposed acquisition of a new chromatograph for
the firm’s R&D department. The equipment’s basic price is
$70,000, and it would cost another $15,000 to modify it for special
use by your firm. The chromatograph, which falls into the MACRS
3-year class, would be sold after 3 years for $30,000. The MACRS
rates for the first three years are 0.3333, 0.4445, and 0.1481. Use
of the equipment would...
The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed acquisition of...
The president of your company, MorChuck Enterprises, has asked
you to evaluate the proposed acquisition of a new chromatograph for
the firm's R&D department. The equipment's basic price is
$64,000, and it would cost another $17,000 to modify it for special
use by your firm. The chromatograph, which falls into the MACRS
3-year class, would be sold after 3 years for $26,900. The MACRS
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(Ignore the half-year convention for...
The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed acquisition of...
The president of your company, MorChuck Enterprises, has asked
you to evaluate the proposed acquisition of a new chromatograph for
the firm's R&D department. The equipment's basic price is
$69,000, and it would cost another $18,000 to modify it for special
use by your firm. The chromatograph, which falls into the MACRS
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(Ignore the half-year convention for...
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