General Manufacturing Company Consists of Several Divisions,one of Which Is

question 22

Essay

General Manufacturing Company consists of several divisions,one of which is the Transportation Division.The company has decided to dispose of this division since it no longer fits the company's long-term strategy.An offer of $9,000,000 has been received from a prospective buyer.If General retained the division,the company would operate the division for only nine years,after which the division would no longer be needed and would be sold for $600,000.If the company retains the division,an immediate investment of $500,000 would need to be made to update equipment to current standards.Annual net operating cash flows would be $1,805,000 if the division is retained.The company's discount rate is 12%.
Required:
Using the net present value method,determine whether General Manufacturing should accept or reject the offer made by the potential buyer.

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Definitions:

Thymosin

A hormone secreted by the thymus gland, playing a role in the maturation of T lymphocytes, an essential part of the immune system.

T-cells

A type of white blood cell that plays a central role in cell-mediated immunity, recognizing and destroying infected cells in the body.

Maturation

The process of development and growth, leading to a fully developed or mature state.

Complement Proteins

Proteins in the blood that help or "complement" the immune system in destroying pathogens.