1. The Clark Corporation desires to expand. It is considering a cash purchase of Kent Enterprises of $3.6 million. Kent has an $870,000 tax loss carryforward that could be used immediately by Clark which is paying taxes at a rate of 40%. Kent will provide $470,000 per year in cash flow (after tax income plus depreciation) for the next 25 years. The discount rate is 13%.
a. Compute the NPV.
Should the merger be undertaken?