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    When should a merger be undertaken?

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    The Clark Corp desires to expand. It is considering a cash purchase of Kent enterprises for $3 million. Kent has a $700,000 tax loss carryforard that could be used immediately by the Clark Corporation, which is paying taxes at the rate of 30%. Kent will provide $420,000 per year in cash flow (aftertax income plus depreciation) for the next 20 years. If the Clark Corp has a cost of capital of 13%, should the merger be undertaken?

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    PV of cash flows associated with kent = ...

    Solution Summary

    The merger is considered.