Valuation of a Merger Windows N Such, Inc $\ge$ $0
B) Yes, the NPV Is

question 99

Multiple Choice

Valuation of a Merger Windows N Such, Inc., is asking a price of $195 million to be purchased by Curtain Rods Corp. The two firms currently have cumulative total cash flows of $15 million which are growing at 1 percent annually. Managers estimate that because of synergies the merged firm's cash flows will increase by an additional 3 percent for the first four years following the merger. After the first four years cash flows will grow at a rate of 2 percent. The WACC for the merged firms is 10 percent. Calculate the NPV of the merger. Should Curtain Rods Corporation agree to acquire Windows N Such, Inc., for the asking price of $195 million?

• A) yes, the NPV is \(\ge\) $0
• B) yes, the NPV is \(\le\) $0
• C) no, the NPV is \(\ge\) $0
• D) no, the NPV is \(\le\) $0

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Definitions:

Accounts Receivable

Money owed to a business by its customers for goods or services that have been delivered but not yet paid for.

Wages Payable

Liabilities arising from employees' salaries that are earned but not yet paid by the company, representing an obligation to pay for labor services received.

Depreciable Asset

An asset that loses value over time due to wear and tear or obsolescence and for which depreciation can be applied in accounting.

Chlorinated Hydrocarbons

Chemical compounds containing chlorine, carbon, and hydrogen, which are used in industrial applications but can be harmful to the environment and health.