Pattern of cash inflows and synergistic benefits

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Reference no: EM132040444

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Cainan, Inc. is considering a cash acquisition of Calah, Inc. for $40,000,000. Calah, Inc. will provide the following pattern of cash inflows and synergistic benefits for the next 15 years. There is no tax loss carryforward.

Years

1–5 6–15

Cash inflow (aftertax)........................ $5,440,000 $6,900,000

Synergistic benefits (aftertax)............. 550,000 660,000

The cost of capital for the acquiring firm is 12 percent. Should the merger be undertaken?

(If you have difficulty with deferred time value of money problems, consult Chapter 9.)

Reference no: EM132040444

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