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What is the NPV, IRR, and Payback period for the acquisition and what should Atlantic do?

What is the NPV, IRR, and Payback period for the acquisition and what should Atlantic do?

Essentials Of Investments
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
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What is the NPV, IRR, and Payback period for the acquisition and what should Atlantic do?

5. Atlantic Corporation is considering the purchase of the linerboard mill and corrugated box plants of Royal Paper for a total price of $260 million. The estimated incremental cash flows that would result if Atlantic acquired the facilities are presented below. Atlantic's marginal tax rate is 36% and their after-tax cost of capital is 13%. (in $ Millions) 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 ΕΒΙΑΤ 20.1 28.4 41.6 36.9 38.7 43.4 50.3 58.2 62.5 67.0 Depreciation 20.9 28.3 35 39.3 41.3 39.3 34.3 27.1 26.3 25.3 Operating Cashflows 41.0 56.7 76.6 76.2 80.0 82.7 84.6 85.3 88.8 92.3 САРEХ (19.2) (30.5) (41.7) (10.2) (10.2) (8.2) (6.2) (6.2) (4.2) (4.2) NWC (9.0) (16.0) (10.0) (5.0) (4.0) (5.0) (5.0) (4.0) (6.0) (5.0) Ter minal Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 381.5 Free Cash Flows 12.8 10.2 24.9 61.0 65.8 69.5 73.4 75.1 78.6 464.6
Transcribed Image Text:5. Atlantic Corporation is considering the purchase of the linerboard mill and corrugated box plants of Royal Paper for a total price of $260 million. The estimated incremental cash flows that would result if Atlantic acquired the facilities are presented below. Atlantic's marginal tax rate is 36% and their after-tax cost of capital is 13%. (in $ Millions) 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 ΕΒΙΑΤ 20.1 28.4 41.6 36.9 38.7 43.4 50.3 58.2 62.5 67.0 Depreciation 20.9 28.3 35 39.3 41.3 39.3 34.3 27.1 26.3 25.3 Operating Cashflows 41.0 56.7 76.6 76.2 80.0 82.7 84.6 85.3 88.8 92.3 САРEХ (19.2) (30.5) (41.7) (10.2) (10.2) (8.2) (6.2) (6.2) (4.2) (4.2) NWC (9.0) (16.0) (10.0) (5.0) (4.0) (5.0) (5.0) (4.0) (6.0) (5.0) Ter minal Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 381.5 Free Cash Flows 12.8 10.2 24.9 61.0 65.8 69.5 73.4 75.1 78.6 464.6
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