Acquisition of Assets for Cash. Knab Corporation is considering acquiring Deerson Corporation for $40,000. Deerson has liabilities of $62,000. Deerson has machinery that Knab wants, and the remaining assets would be sold for $55,000. The machinery will furnish Knab with an increase in annual cash flow of $7,000 for the next 10 years. The cost of capital is 12 percent.
(a) What is the net cost of the machinery?
(b) Should the acquisition be made?