The Clark Corporation desires to expand. It is considering a cash purchase of Kent Enterprises for $3 million. Kent has a $700,000 tax loss carry forward that could be used immediately by the Clark Corporation, which is paying taxes at the rate of 30%. Kent will provide the $420, 000 per year in cash flow (after tax income plus depreciation) for the next 20 years. If the Clark Corporation has a cost of capital of 13%, should the merger be undertaken?© BrainMass Inc. brainmass.com June 3, 2020, 6:08 pm ad1c9bdddf
We need to calculate the NPV of the project to decide the action. Kent will provide $420,000 per year for 20 years. We need to find the present value of this stream of cash flow. Since this is an ...
The solution explains how to evaluate a merger if the acquired company has tax loss carry forward.