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...
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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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The firm will use the proceeds of the bond sale to repurchase
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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
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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
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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
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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
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The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed acquisition of...
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you to evaluate the proposed acquisition of a new chromatograph for
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(Ignore the half-year convention for...
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