What will be the cost of Well Water after considering the financing surrounding the purchase (savings on the loan), Well Water's (net) working capital situation, and the additional equipment that would be purchased?

Barley and Associates estimated that net income after the merger will exceed the sum of the net incomes both firms achieved individually. Does this seem reasonable? Explain.

(a) Develop pro forma (consolidated) income statements for annual sales of $4M and $5M.

(b) Calculate the relevant incremental cash flows. (Use the "as is" cash flows as the base position to calculate these incremental amounts.)

(c) What is your estimate of Well Water's value? Explain.