Estimates that net cash flows for the acquired company

Assignment Help Financial Management

Reference no: EM131027185

Company X wants to acquire another similar company. It estimates that net cash flows for the acquired company will be $8,500,000 per year for 10 years. The cost is $50,000,000. The company's cost of capital is 10 percent.

A. Calculate NPV, IRR, and MIRR.

B. Should the company go ahead with the project based on your calculations? Why or why not?

C. Discuss 3 factors that might change your decision, e.g., what might cause NPV, IRR, or MIRR to change.

Reference no: EM131027185

Questions Cloud

The fair present value of the treasury security : Explain what a STRIP is. The total sale proceeds from selling the stepped components of a Treasury security can sometimes be greater than the fair present value of the Treasury security. Why might this happen?

Would increase the speed of bottling and save money : The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $72,000. The annual cash flows have the following projections. Use Appendix B and App..

Calculate the weighted cost of each source of capital : Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The corporate tax rate is 30 percent. Northwest’s treasurer is trying to determine the corporation’s current weighted average cost of capital in o..

Is a warrant more similar to a call option or a put option : Company Z issued bonds with detachable warrants several years ago. Each warrant allows the holder to purchase one share of stock at $30 per share. The stock has a beta of 1.3. Calculate the exercise value of the warrants if the price of the und..

Estimates that net cash flows for the acquired company : Company X wants to acquire another similar company. It estimates that net cash flows for the acquired company will be $8,500,000 per year for 10 years. The cost is $50,000,000. The company's cost of capital is 10 percent. Should the company go ahead ..

Commercial banks alleviate the problem of liquidity risk : How do commercial banks alleviate the problem of liquidity risk that investors would face if they were to directly loan funds to individuals and corporations?

Project earnings and dividends for the next year : Justin Cement Company has had the following pattern of earnings per share over the last five years: Year Earnings Per Share 2006 $ 11.00 2007 11.55 2008 12.13 2009 12.74 2010 13.38 The earnings per share have grown at a constant rate (on a rounded ba..

Compute the price of ecology labs common stock : Ecology Labs, Inc., will pay a dividend of $3.90 per share in the next 12 months (D1). The required rate of return (Ke) is 22 percent and the constant growth rate is 10 percent. (Each question is independent of the others.) a. Compute the price of Ec..

Explain how each of the affects corporate governance : Explain how each of the following affects corporate governance and whether the impact is positive or negative.

User Account

All Pages