Your firm may purchase certain assets from a strugglingcompetitor. The competitor is asking $50,000,000 for the assets.Last year, the assets produced revenues of $15,000,000. Revenuesearned in the next year (i.e., year 1) and in future years areestimated using the information in the table below.
Your staff expects that the following assumptions will hold overthe operating period:
- The assets will be viable for another 10 years but will beworthless at the end of the 10 year period
- The assets are qualified by the IRS for depreciation using thestraight-line method
- A constant tax rate of 20%
Your staff has also identified three key areas of uncertainty,which include
| Worst-Case | Base-Case | Best-Case |
Cash Expenses as a % of Revenues | 60% | 55% | 45% |
WACC | 20% | 15% | 8% |
Revenue Growth Rate | -10% | 0% | 7% |
Probability | 10% | 80% | 10% |
For this case, address the following goals (each goalshould be shown in a separate worksheet in an Excel workbook;provide labels on each worksheet):
Goal 2- Calculate the NPV and IRR for each scenario.Within the Goal 2 worksheet, discuss/interpret the NPV and IRRvalues that you have calculated in terms of whether the acquisitionshould be accepted or rejected.
