Worldwide Scientific Equipment is considering a cash acquisition of Medical Labs for $1.7 million. Medical Labs...
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?
Homework Answers
| Ind. CF | Synergy | Combine CF | PVF at 12% | Present value | ||
| Year | ||||||
| 1--5 | 160000 | 21000 | 181000 | 3.60478 | 652465.18 | |
| 6--15 | 180000 | 31000 | 211000 | 3.20609 | 676484.99 | |
| 16--25 | 220000 | 51000 | 271000 | 1.03227 | 279745.17 | |
| Present value f inflows | 1608695.3 | |||||
| Less: Investment | 1700000 | |||||
| NPV | -91304.66 | |||||
| The Project shall be accepted | ||||||
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