ZuoTi.Pro
Question

2. You read the classified ads in your newspaper and found a company for sale. The asking price was $400,000. However, you further read that the company was in legal trouble with the government and would require you to spend approximately $250,000 (legal fee) after tax to bring the company on l (or back to life). The company would be expected to generate after tax cash flows of $100-009 a year. 1oo With a required rate ofreturn of 12%, is it a good buy if (Please explain your answer with your calculations)
business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Cost to buy the company = asking price+ legal fees

=4,00,000+2,50,000

=6,50,000$

It is expected to generate 150000 per year

Hence present value of cash inflow = 150000/12%

=1250,000$

Thus net benefit = 1250,000-650000 = 600,000$

Thus he should purchase the company

0 0
Add a comment
Know the answer?
Add Answer to:
2. You read the classified ads in your newspaper and found a company for sale. The...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Read the Floorgraphics scenario. Read the following scenario: You work for Alberta Greenwood, owner of Better...

    Read the Floorgraphics scenario. Read the following scenario: You work for Alberta Greenwood, owner of Better Bike and Ski Shop. Yesterday, Alberta met with the Schwinn sales representative, Tom Becker, who urged her to sign a contract with Floorgraphics. That company leases floor space from retail stores and creates and sells floor ads to manufacturers such as Schwinn. Floorgraphics will pay Alberta a fee for leasing the floor space, as well as a percentage for every ad it sells. Alberta...

  • 2) Chimichanga Fest Your utility function is given by U-X,X, where xi s your consumption of Chimichangas and x, is your consumption of all the other goods in the economy. Yes, you spend 60% of...

    2) Chimichanga Fest Your utility function is given by U-X,X, where xi s your consumption of Chimichangas and x, is your consumption of all the other goods in the economy. Yes, you spend 60% of your budget on Chimichangas, which is totally reasonable after the Dumpling House tragedy. a) Solve the utility maximization problem, finding the uncompensated demand for x, & x, and the indirect utility function in terms of p,, p, and Y. b) Solve the expenditure minimization problem,...

  • Question 2-Make vs Buy 120 marks) When you completed your audit of the Surted Compay, managemere...

    Question 2-Make vs Buy 120 marks) When you completed your audit of the Surted Compay, managemere in deciding whether to cont part, which is named Faktron, company From your audit working popers and from further isvestipsion yos deveup the following data as being typical of the company's operstions wkal for your assistance ing a pat or to buy it fros an ouside supplier. The The annod requirement e Fasktros 500un T The lowest quotation from a supplier wa Faktrons have...

  • You are an analyst evaluating Up-and-Coming Airlines Inc., a very hot potential acquisition candidate your company...

    You are an analyst evaluating Up-and-Coming Airlines Inc., a very hot potential acquisition candidate your company is considering. Up-and-Coming currently has no debt and you estimate that it should be able to generate $1 million a year from its existing assets (after tax cash flow). Furthermore, it has the opportunity to invest one-half of its earnings indefinitely. You estimate that because of better management, your company should be able to improve the rate of return that Up-and Coming can earn...

  • Real options problems 2. You just finished a week of heli-skiing and had such a good...

    Real options problems 2. You just finished a week of heli-skiing and had such a good time that you want to go again next year. Plus, the heli-ski outfit is offering the following deal: If you pay for your vacation now, you can get a week of heli-skiing for $2,500. However, if you cannot ski because the helicopters cannot fly due to bad weather, there is no snow or you get sick, you do not get a refund. There is...

  • Please read the article and answer about questions. You and the Law Business and law are...

    Please read the article and answer about questions. You and the Law Business and law are inseparable. For B-Money, the two predictably merged when he was negotiat- ing a deal for his tracks. At other times, the merger is unpredictable, like when your business faces an unexpected auto accident, product recall, or government regulation change. In either type of situation, when business owners know the law, they can better protect themselves and sometimes even avoid the problems completely. This chapter...

  • Your line manager, Ahmed, has sent you the following email late on Wednesday just as you...

    Your line manager, Ahmed, has sent you the following email late on Wednesday just as you are about to finalise your timesheet and head to a monthly tax-update webinar: From: Ahmed Sent: Wednesday, 16 September 2020, 3:58PM Subject: URGENT: Lisa Eastwood meeting scheduled, task assigned Good afternoon, I have just spoken with Lisa Eastwood (new client) over her tax position for the current tax year. I will be getting further documentation tomorrow; however, I need you to examine my notes...

  • can you please show your work? Healthcare Finance 18.2 Net reven Cash expe Depreciati Earni Interest...

    can you please show your work? Healthcare Finance 18.2 Net reven Cash expe Depreciati Earni Interest Earni Taxes (40 Net profit Asset requ c. Is the financial risk of the business different under the two acquisi tion alternatives? Big Sky Hospital plans to obtain a new MRI that costs $1.5 million and has an estimated four-year useful life. It can obtain a bank loan for the entire amount and buy the MRI, or it can lease the equip ment. Assume...

  • Read the case study "Google, Apple, and Facebook Struggle for Your Internet Experience" on page 255....

    Read the case study "Google, Apple, and Facebook Struggle for Your Internet Experience" on page 255. Then discuss the advantages and disadvantages for each company. BUSINESS PROBLEM-SOLVING CASE Google, Apple, and Facebook Battle for Your Internet Experience Apple has a legacy of innovation on its side. In Three Internet titans Google, Apple, and 2011, it unveiled the potentially market disrupting Facebook are in an epic struggle to dominate your Siri (Speech Interpretation and Recognition Internet experience, and caught in the...

  • Individual Tax In 2018/2019 financial year, one of your clients, Alex comes to you to do a tax return for him. He wishes...

    Individual Tax In 2018/2019 financial year, one of your clients, Alex comes to you to do a tax return for him. He wishes to minimize his tax liability. He provided you the following information: (Note: the records are GST exclusive) Receipts: ⚫ $60,000 Net Salary Payment (after withheld $20,000 tax) ⚫ $1,000 dividend from a public listed company (fully franked) ⚫ $1,000 dividend from a small business entity (60% franked) ⚫ $36,000 income from the investment property located in Sandy...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT