7211TutAnswersWk14_109

7211TutAnswersWk14_109 - Tutorial Questions for Chapter 17...

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Unformatted text preview: Tutorial Questions for Chapter 17 17-4 Asset acquisition decision a. Effective cost of press = $60,000 + $90,000 $65,000 = $85,000 b. The present value of future cash flows (PV) of Frieman Press acquisition is 31 . 322 , 104 $ ) 14 . 1 ( 1 1 14 . 20000 ) 1 ( 1 1 10 = - = +- = T r r C PV so NPV = $104,322.31 $85,000 = $19,322.31 Zarin should merge with Freiman, since the NPV is greater than zero. c. The present value of future cash flows (PV) of a new press is 01 . 619 , 135 $ ) 14 . 1 ( 1 1 14 . 26000 ) 1 ( 1 1 10 = - = +- = T r r C PV so NPV = $135,619.01 $120,000 = $15,619.01 Since the NPV of the acquisition is greater than the NPV of the new purchase, the firm should make the acquisition of the press from Freiman. The advantage of better quality from the new press would have to be considered on a subjective basis....
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This note was uploaded on 10/10/2010 for the course ECON 7300 at University of Sydney.

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7211TutAnswersWk14_109 - Tutorial Questions for Chapter 17...

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