Question

Worldwide Scientific Equipment is considering a cash acquisition of Medical Labs for $2.8 million. Medical Labs will provide the following pattern of cash inflows and synergistic benefits for the next 25 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
	1–5			6–15			16–25
Cash inflow (aftertax)	$	270,000		$	290,000		$	330,000
Synergistic benefits (aftertax)		32,000			42,000			62,000

The cost of capital for the acquiring firm is 12 percent.

a. Compute the net present value. (Negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your final answer to 2 decimal places.)

b. Should the merger be undertaken?

• No

Answer 1