Question

J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,900,000. 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
	1–5	6–15	16–20
Cash inflow (aftertax)	$530,000	$690,000	$890,000
Synergistic benefits (aftertax)	49,000	69,000	79,000

The cost of capital for the acquiring firm is 14 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.)

b. Should the merger be undertaken?

	No
	Yes

Answer 1