The Charles Corporation desires to expand. It is considering a cash purchase of Atlas Enterprises for $3,000,000. The Atlas Corporation has a $710,000 tax loss carry - forward that could be used immediately by the Charles Corporation, which is paying taxes at the rate of 40 percent. Atlas will provide $410,000 per year in cash flow (aftertax income plus CCA) for the next 16 years. a. If the Charles Corporation has a cost of capital of 12 percent. compute the net present value. (Use a Financial calculator to arrive at the answers. Negative answer should be indicated by a minus sign. Round the final answer to the nearest whole dollar.) Net present value $ b. Should the merger be undertaken? multiple choiceYesNo
The Charles Corporation desires to expand. It is considering a cash purchase of Atlas Enterprises for $3,000,000. The Atlas Corporation has a $710,000 tax loss carry - forward that could be used immediately by the Charles Corporation, which is paying taxes at the rate of 40 percent. Atlas will provide $410,000 per year in cash flow (aftertax income plus CCA) for the next 16 years. a. If the Charles Corporation has a cost of capital of 12 percent. compute the net present value. (Use a Financial calculator to arrive at the answers. Negative answer should be indicated by a minus sign. Round the final answer to the nearest whole dollar.) Net present value $ b. Should the merger be undertaken? multiple choiceYesNo
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The Charles Corporation desires to expand. It is considering a cash purchase of Atlas
Enterprises for $3,000,000. The Atlas Corporation has a $710,000 tax loss carry - forward
that could be used immediately by the Charles Corporation, which is paying taxes at the
rate of 40 percent. Atlas will provide $410,000 per year in cash flow (aftertax income plus
CCA) for the next 16 years. a. If the Charles Corporation has a cost of capital of 12 percent.
compute the net present value. (Use a Financial calculator to arrive at the answers. Negative
answer should be indicated by a minus sign. Round the final answer to the nearest whole
dollar.) Net present value $ b. Should the merger be undertaken? multiple
choiceYesNo
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