Problem:
Worldwide Scientific Equipment is considering a cash acquisition of Medical Labs for 1.5 million. Medical Labs will provide the following pattern of cash inflows and synergistic benefits for the next 25 years. There is no tax loss carry forward.
Years
1-5 6-15 16-25
Cash inflows (aftertax) $100,000 $120,000 $160,000
Synergestic benefits (aftertax) 15,000 25,000 45,000
The cost of capital for acquiring firm is 9 %. Should the merger be undertaken?