Compute the net present value

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J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $4,500,000. 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 1-56-1516-20Cash inflow (aftertax)$490,000 $650,000 $850,000 Synergistic benefits (aftertax) 45,000 65,000 75,000

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

a. Compute the net present value. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Should the merger be undertaken?

Reference no: EM132419786

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