Purchase Solution

Cost of Capital and Purchase Decision

Not what you're looking for?

Ask Custom Question

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?

Purchase this Solution

Solution Summary

This solution calculates the cost of capital. I determine if Alpha Corporation should go forward with the planned acquisition based on a cost of capital of 11%.

Solution Preview

2,400,000 - (600,000 x 0.35) =
2,400,000 - 210,000 =

300,000 / 2,190,000 ...

Purchase this Solution

Free BrainMass Quizzes
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.

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.

Introduction to Finance

This quiz test introductory finance topics.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.