Question
Worldwide Scientific Equipment is considering a cash acquisition of Medical Labs for $1.3 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) |
$120,000 |
$140,000 |
$180,000 |
| Synergistic benefits (aftertax) |
17,000 |
27,000 |
47,000 |
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.)
Net present value
b. Should the merger be undertaken?
No
Yes