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# Alpha Corporation is considering buying Beta Corporation for

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Alpha Corporation is considering buying Beta Corporation for \$2,400,000 cash. Beta Corporation has a \$600,000 tax loss carryforward that could be used immediately by Alpha Corporation. Alpha Corporation pays tax at the rate of 35%. Beta Corporation will provide \$300,000 per year in cash flow (in after tax income plus depreciation) for the next 20 years. If Alpha Corporation has a cost of capital of 11%, should Alpha Corporation go forward with the acquisition? (Show your work/calculations/formulas)

#### Solution Preview

\$2,400,000 - \$600,000 = \$1,800,000 to acquire Beta Corporation.

11(1-35%) = 7.15% = interest rate ...

#### Solution Summary

Alpha Corporation is considering buying Beta Corporation for \$2,400,000 cash. Beta Corporation has a \$600,000 tax loss carryforward that could be used immediately by Alpha Corporation. Alpha Corporation pays tax at the rate of 35%. Beta Corporation will provide \$300,000 per year in cash flow (in after tax income plus depreciation) for the next 20 years. If Alpha Corporation has a cost of capital of 11%, should Alpha Corporation go forward with the acquisition? (Show your work/calculations/formulas)

\$2.49