J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,200,000. Patterson will provide the following pattern of cash inflows and synergistic benefits for the next 20 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. Cash inflow (aftertax) Synergistic benefits (aftertax) 1 to 5 $ 460,000 42,000 Years 6 to 15 $ 620,000 62,000 16 to 20 $ 820,000 72,000 The cost of capital for the acquiring firm is 11 percent. a. Compute the net present value. Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. es Net present value b. Should the merger be undertaken? Yes No
J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,200,000. Patterson will provide the following pattern of cash inflows and synergistic benefits for the next 20 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. Cash inflow (aftertax) Synergistic benefits (aftertax) 1 to 5 $ 460,000 42,000 Years 6 to 15 $ 620,000 62,000 16 to 20 $ 820,000 72,000 The cost of capital for the acquiring firm is 11 percent. a. Compute the net present value. Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. es Net present value b. Should the merger be undertaken? Yes No
Chapter11: Capital Budgeting And Risk
Section: Chapter Questions
Problem 8P
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Transcribed Image Text:J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,200,000. Patterson will provide the following
pattern of cash inflows and synergistic benefits for the next 20 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.
Cash inflow (aftertax)
Synergistic benefits (aftertax)
1 to 5
$ 460,000
42,000
Years
6 to 15
$ 620,000
62,000
16 to 20
$ 820,000
72,000
The cost of capital for the acquiring firm is 11 percent.
a. Compute the net present value.
Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2
decimal places.
es
Net present value
b. Should the merger be undertaken?
Yes
No
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