Question

Question Help Cash acquisition decision Benson Oil is being considered for acquisition by Dodd Oil. The combination, Dodd believes would increase its cash inflows by $30,000 for each of the next 5 years and by $50,000 for each of the following 5 years. Benson has high financial leverago, and Dodd can expect its cost of capital to increase from 13% to 16% if the merger is undertaken. The cash price of Benson is $120.000 a. Would you recommend the merger? b. Would you recommend the merger if Dodd could use the $120,000 to purchase equipment that will return cash inflows of $34,000 per year for each of the next 10 years? a. The net present value of the merger is sl (Round to the nearest cent)

Answer 1

cash flowes Year 1-5 PUIPA 16% 302743 30,000 Pro 98228.80 77946 37 6-10 50,000 1.5589 $176175018 Total Prof cash Enflows $176175-18. Less! Cost of Acquisition. (11,20,000) $ 56175018 . Because the NPV og positive, the acquisti ton is recommended. Year Prof cash flours Prica @ 16% 164329073 408332 1-10 34000 Total prof cash Pnflows $164329 073 ois - Cost of acquiston ($ 1,20,000 ) | 44329073 Comparing the above pro cash flows i lower · But Norů positive the acquisition as recommended