Question
The Clark Corporation desires to expand. It is considering a cash purchase of Kent Enterprises for...
The Clark Corporation desires to expand. It is considering a cash purchase of Kent Enterprises for $2 million. Kent has a $610,000 tax loss carryforward that could be used immediately by the Clark Corporation, which is paying taxes at the rate of 30 percent. Kent will provide $310,000 per year in cash flow (aftertax income plus depreciation) for the next 25 years. The discount rate is 13 percent. Use Appendix D as an approximate answer, but calculate your final answer using the formula and financial calculator methods.
a. Compute the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.)
b. Should the merger be undertaken?
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