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Atlantic Corporation is considering the purchase of the linerboard mill and corrugated box plants of Royal Paper for a total price of $260 million. The estimated incremental cash flows that would result if Atlantic acquired the facilities are presented below. Atlantic's marginal tax rate is 36% and their after-tax cost of capital is 13%. 1984 (in $ Millions) 1985 1986 1987 1988 1989 1990 1991 1992 1993 EBIAT 20.1 28.4 41.6 36.9 38.7 43.4 50.3 58.2 62.5 67.0 Depreciation Operating Cashflows 20.9 28.3 35 39.3 76.2 41.3 80.0 39.3 82.7 34.3 27.1 85.3 26.3 25.3 41.0 56.7 76.6 84.6 88.8 92.3 CAPEX (19.2) (30.5) (41.7) (10.2) (10.2) (8.2) (5.0) (6.2) (6.2) (5.0) (4.0) 00 (4.2) (6.0) (4.2) (5.0) NWC (9.0) (16.0) (10.0) (4.0) (5.0) Terminal Value 00 61.0 0.0 0.0 10.2 0.0 24.9 0.0 65.8 0.0 69.5 0.0 73.4 0.0 381.5 78.6 464.6 75.1 Free Cash Flows 12.8

Atlantic Corporation is considering the purchase of the linerboard mill and corrugated box plants of Royal Paper for a total price of $260 million. The estimated incremental cash flows that would result if Atlantic acquired the facilities are presented below. Atlantic's marginal tax rate is 36% and their after-tax cost of capital is 13%. 1984 (in $ Millions) 1985 1986 1987 1988 1989 1990 1991 1992 1993 EBIAT 20.1 28.4 41.6 36.9 38.7 43.4 50.3 58.2 62.5 67.0 Depreciation Operating Cashflows 20.9 28.3 35 39.3 76.2 41.3 80.0 39.3 82.7 34.3 27.1 85.3 26.3 25.3 41.0 56.7 76.6 84.6 88.8 92.3 CAPEX (19.2) (30.5) (41.7) (10.2) (10.2) (8.2) (5.0) (6.2) (6.2) (5.0) (4.0) 00 (4.2) (6.0) (4.2) (5.0) NWC (9.0) (16.0) (10.0) (4.0) (5.0) Terminal Value 00 61.0 0.0 0.0 10.2 0.0 24.9 0.0 65.8 0.0 69.5 0.0 73.4 0.0 381.5 78.6 464.6 75.1 Free Cash Flows 12.8

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 9E: Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required:...
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  1. Calculate the NPV, IRR, and payback period for the acquisition and indicate what you think Atlantic should do.
Atlantic Corporation is considering the purchase of the linerboard mill and corrugated box plants of Royal Paper for a total price of $260 million. The estimated incremental cash flows that would result if Atlantic acquired the facilities are presented below. Atlantic's marginal tax rate is 36% and their after-tax cost of capital is 13%. 1984 (in $ Millions) 1985 1986 1987 1988 1989 1990 1991 1992 1993 EBIAT 20.1 28.4 41.6 36.9 38.7 43.4 50.3 58.2 62.5 67.0 Depreciation Operating Cashflows 20.9 28.3 35 39.3 76.2 41.3 80.0 39.3 82.7 34.3 27.1 85.3 26.3 25.3 41.0 56.7 76.6 84.6 88.8 92.3 CAPEX (19.2) (30.5) (41.7) (10.2) (10.2) (8.2) (5.0) (6.2) (6.2) (5.0) (4.0) 00 (4.2) (6.0) (4.2) (5.0) NWC (9.0) (16.0) (10.0) (4.0) (5.0) Terminal Value 00 61.0 0.0 0.0 10.2 0.0 24.9 0.0 65.8 0.0 69.5 0.0 73.4 0.0 381.5 78.6 464.6 75.1 Free Cash Flows 12.8
Transcribed Image Text:Atlantic Corporation is considering the purchase of the linerboard mill and corrugated box plants of Royal Paper for a total price of $260 million. The estimated incremental cash flows that would result if Atlantic acquired the facilities are presented below. Atlantic's marginal tax rate is 36% and their after-tax cost of capital is 13%. 1984 (in $ Millions) 1985 1986 1987 1988 1989 1990 1991 1992 1993 EBIAT 20.1 28.4 41.6 36.9 38.7 43.4 50.3 58.2 62.5 67.0 Depreciation Operating Cashflows 20.9 28.3 35 39.3 76.2 41.3 80.0 39.3 82.7 34.3 27.1 85.3 26.3 25.3 41.0 56.7 76.6 84.6 88.8 92.3 CAPEX (19.2) (30.5) (41.7) (10.2) (10.2) (8.2) (5.0) (6.2) (6.2) (5.0) (4.0) 00 (4.2) (6.0) (4.2) (5.0) NWC (9.0) (16.0) (10.0) (4.0) (5.0) Terminal Value 00 61.0 0.0 0.0 10.2 0.0 24.9 0.0 65.8 0.0 69.5 0.0 73.4 0.0 381.5 78.6 464.6 75.1 Free Cash Flows 12.8
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