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 boxplants of Royal Paper for a total price of $260 million. The estimated incremental cash flows that wouldresult if Atlantic acquired the facilities are presented below. Atlantic's marginal tax rate is 36% andtheir after-tax cost of capital is 13%.(in $ Millions)1984198519861987198819891990199119921993ΕΒΙΑΤ20.128.441.636.938.743.450.358.262.567.0Depreciation20.928.33539.341.339.334.327.126.325.3Operating Cashflows41.056.776.676.280.082.784.685.388.892.3САРEХ(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)Terminal Value0.00.00.00.00.00.00.00.00.0381.5Free Cash Flows12.810.224.961.065.869.573.475.178.6464.6

NPV and IRR year Free cash flow PV factor PV 0 -260 1 -260 1 12.8 0.884956 11.32743 2…

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

Essentials Of Investments

11th Edition

ISBN:9781260013924

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

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

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Question

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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

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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shares on January 1. Promise paid $300,000 and issued $200,000 in long-term liabilities and paid Promise also agreed to pay $80,000 to the former owners of SaidSo contingent on meeting certain revenue goals during the following year. Promise estimated the present value of its probability adjusted expected payment for the contingency or contingent obligation at $30,000 in legal fees. $23,000 Precombination book values for SaidSo, Inc. are as follows: 80,000 90,000 175,000 Current assets 24 Equipment Buildings Goodwill 33,000 $378,000 Total $ (45,000) (180,000) (115,000) (138,000) 100,000 $(378,000) Current liabilities 2$ Common stock Retained earnings Revenues Expenses Total Promise's appraisal of SaidSo found two balance sheet accounts that differed from fair value. Equipment was undervalued by $15,000 and Buildings by $5,000. Promise noted that SaidSo has unrecorded client contracts worth $60,000 and résearch and development activity in process with an appraised fair value of $90,000
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