iquidation based valuation Tang mining is considering the acquisition of Zang Mining at a cash price of P6,000,000. The primary motivation for Tang’s purchase of Zang is for a special piece of drilling equipment that it believes will generate an after-tax cash flow of P2,000,000 per year during the next 5 years. Zang Mining has liabilities of P9,000,000 and Tang estimates that it can sell the remaining asset P6,500,000 . Tang will use a 15% percent of the cost of capital for evaluating the acquisition. Based on this information, what is the net value of the special drilling equipment?

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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Liquidation based valuation

Tang mining is considering the acquisition of Zang Mining at a cash price of P6,000,000. The
primary motivation for Tang’s purchase of Zang is for a special piece of drilling equipment that it
believes will generate an after-tax cash flow of P2,000,000 per year during the next 5 years. Zang
Mining has liabilities of P9,000,000 and Tang estimates that it can sell the remaining asset
P6,500,000 . Tang will use a 15% percent of the cost of capital for evaluating the acquisition. Based
on this information, what is the net value of the special drilling equipment?

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