J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,100,000....
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Accounting
J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,100,000. 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.
Years
15
615
1620
Cash inflow (aftertax)
$450,000
$610,000
$810,000
Synergistic benefits (aftertax)
41,000
61,000
71,000
The cost of capital for the acquiring firm is 11 percent.
a. Compute the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
Net present value
b. Should the merger be undertaken?
Yes
No
Answer & Explanation
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