Should you purchase the company?
Not what you're looking for?
You are thinking about acquiring a new company. The company is at a bargain asking price of $400,000. You have your expert accountants project a 10 year income statement (see below) based on how well you think you could run this new venture. Now you need to project a ten year cash flow and determine if you should acquire this new entity. You are currently using a 15% discount rate in your calculations. (use at least two decimal places in all calculations)
Net Present Value $____________________
Internal rate of return __________________%
Should you acquire the new company? _________
Net Income
Depreciation After Taxes Net Cash Flow
Year 1 42,870 184,278 ___________
Year 2 73,470 159,018 ___________
Year 3 52,470 162,159 ___________
Year 4 37,470 158,752 ___________
Year 5 26,790 149,365 ___________
Year 6 26,760 129,707 ___________
Year 7 26,790 105,576 ___________
Year 8 13,380 84,448 ___________
Year 9 0 57,539 ___________
Year 10 0 16,053 ___________
Purchase this Solution
Solution Summary
Much consideration should be done before making a major purchase. When a business chooses to expand or move their facilities and looks to purchase a new location, accountants need to project a multi-year income statement to see if the purchase is feasible. Cash flows, depreciation and the legal department must be consulted before a decision is made.
Solution Preview
Net Present Value = $483,917.82
Internal rate of return = 51.12%
Should you acquire the new company? Yes, NPV is positive
Net Income
Depreciation After Taxes Net Cash Flow
Year 1 42,870 + 184,278 227148
Year 2 73,470 + 159,018 232488
Year 3 52,470 + 162,159 214629
Year 4 37,470 + 158,752 ...
Purchase this Solution
Free BrainMass Quizzes
SWOT
This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Organizational Behavior (OB)
The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Introduction to Finance
This quiz test introductory finance topics.