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Brandon Corporation is considering the opportunity to expand its operations. They have the opportunity to make...

Brandon Corporation is considering the opportunity to expand its operations. They have the opportunity to make a cash purchase of $4 million for Whiteman Co. Whiteman will contribute $450,000/year in cash flow (aftertax income plus depreciation) for the next 15 years. If Brandon's cost of capital is 12% and the tax rate is 30%, should the merger happen? Please show work with how the numbers go in the formula.

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Answer #1
Year 0.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Initial investment 4,000,000.00
After tax income plus depreciation 450,000.00 450,000.00 450,000.00 450,000.00 450,000.00 450,000.00 450,000.00 450,000.00 450,000.00 450,000.00 450,000.00 450,000.00 450,000.00 450,000.00 450,000.00
Cost of capital 12%
Net present worth -935,110.98 Using NPV formula at 12% , and above cash flows subtracting initial investment in it.
Since net present worth is negetive this merger is loss making hence should not happen
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