General Manufacturing Company Consists of Several Divisions, One of Which

question 100

Essay

General Manufacturing Company consists of several divisions, one of which is the Transportation Division. The company has decided to dispose of this division because 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%. (Ignore income taxes in this problem.)

Required:

Using the net present value method, determine whether General Manufacturing should accept or reject the offer made by the potential buyer.

---

Definitions:

Electroconvulsive Therapy

A psychiatric treatment where seizures are electrically induced in patients to provide relief from mental disorders.

Major Depression

A mood disorder characterized by persistent feelings of sadness, loss of interest, and other emotional and physical symptoms that impair daily functioning.

Rapid Transcranial Magnetic Stimulation

A non-invasive procedure that uses magnetic fields to stimulate nerve cells in the brain to improve symptoms of depression.

Electroconvulsive Shock Therapy

A method of treating psychiatric illnesses by inducing seizures in individuals with electrical impulses to improve mental health.