In 2012, the Campbell Soup Company acquired Bolthouse Farms for $1.55 billion. This acquisition increased the level of vertical integration in Campbell, as BolthouseFarms owned and operated extensive farming operations where it produced many food items used in Campbell's products.Suppose that the value of produce provided by these farms after the acquisition would be $85 million per year for Campbell and that, in addition, Campbell could save$5 million per year in costs it would otherwise spend in searching for and negotiating over equivalent produce. However, the transaction cost of the acquisition(lawyers' fees, re-locating some production facilities, paying severance to unnecessary employees, etc.) required a one-time payment of $50 million.Assume that Campbell receives the produce related benefits in perpetuity. If the interest rate used to discount future earnings is 5%, what is the present value of netbenefits to Campbell?The present value (PV) of net benefits to Campbell isPV = $ million. (Enter your response rounded to two decimal places.)

Present value of perpetual annuity can be calculated as: = Amount of savings / Discount rate

Answered: In 2012, the Campbell Soup Company…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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