Westover Industries Is Considering Purchasing the Eastward Co

question 361

Multiple Choice

Westover Industries is considering purchasing the Eastward Co. Westover believes that Eastward can generate cash flows of $21,000, $17,000, and $10,000 over the next three years, respectively.
After that time, Westover feels the Eastward Co. will be worthless. Westover has determined that a
16% rate of return is applicable to this potential purchase. What is the maximum amount Westover
Should pay to acquire the Eastward Co.?

• A) $32,021.51
• B) $37,143.79
• C) $37,617.01
• D) $38,911.06
• E) $43,086.80

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Definitions:

Supply Inelastic

A situation where the quantity supplied of a good is not significantly affected by changes in its price.

Cross Elasticity

A gauge for the reaction in the demand for one item when there's a price alteration in another item.

Cross Elasticity

The extent to which the demand for a certain good alters in response to price changes of another good.

Substitutes

Goods or services that can be used in place of each other, where an increase in the price of one leads to an increased demand for the other.