Explore BrainMass

Explore BrainMass

    Merger Analysis

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    The Stanley Stationary Shoppe wishes to acquire The Carlson Card Gallery for $400,000. Stanley expects the merger to provide incremental earnings for about $64,000 a year for 10 years. Ken Stanley has calculated the marginal cost of capital for this investment to be 10 percent. Conduct a capital budgeting analysis for Stanley to determine whether or not he should purchase The Carlson Card Gallery.

    I know the answer is supposed to be NPV= -$6,747.71, but I do not know how to work the problem. Thanks

    © BrainMass Inc. brainmass.com June 3, 2020, 6:25 pm ad1c9bdddf

    Solution Preview

    In order to work out a capital budgeting problem, you need to calculate the present value of the cash inflows.From the sum of the Present Value of the inflows subtract the initial investment to get the NPV. If the NPV is negative, the project should not be accepted.

    In this case, the initial ...

    Solution Summary

    The solution explains the calculation relating to acquisition of Carlson Card by Stanley Stationary.