Is it good buy if the business was expected to last forever

Reference no: EM132068169

Question: You read the classified ads in your newspaper and found a company for sale. The asking price was $500,000. However, you further read that the company was in legal trouble with the government and would require you to spend approximately $250,000 (legal fee) after tax to bring the company "on line" (or back to life). The company would be expected to generate after tax, cash flows of $100,000 a year. With a required rate of return of 10%, is it a good buy if (Please explain your answer with your calculations)

a. the business was expected to have 25-year life? (Ignore the terminal value)

b. the business was expected to last forever?

Reference no: EM132068169

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