Taxes in perpetuity startingfrom the first year

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BG Corporation is considering a bid to take over SM Limited. Should the take over occur, BG Corporation would benefit from SM Limited's before-tax operating cashflows of:

i) $500,000 per year for the first three years,

ii) $700,000 per year from the fourth year into perpetuity, and

iii) $225,000 per year of synergistic savings before taxes in perpetuity startingfrom the first year.

Assume that the cash flows occur at the end of each year, the tax rate is 40% for bothcompanies, and BG Corporation's after-tax required rate of return is 13%. What is themaximum amount that BG Corporation should be willing to pay to take over SMCorporation (rounded to the nearest thousand dollars)?

Reference no: EM131803431

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