Purchase Solution

Merger Analysis

Not what you're looking for?

Ask Custom Question

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

Purchase this Solution

Solution Summary

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

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 ...

Purchase this Solution


Free BrainMass Quizzes
Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Motivation

This tests some key elements of major motivation theories.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.