Compute the net present value

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Problem - Worldwide Scientific Equipment is considering a cash acquisition of Medical Labs for $2.0 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.

 

Years

1-5

6-15

16-25

Cash inflow (after-tax)

$190,000

$210,000

$250,000

Synergistic benefits (after-tax)

24,000

34,000

54,000

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

Required -

1. Compute the net present value.

2. Should the merger be undertaken?

a. No

b. Yes

Reference no: EM132461123

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