Tangshan Mining Is Considering the Acquisition of Zhengsen Mining at a Cash

question 151

Multiple Choice

Tangshan Mining is considering the acquisition of Zhengsen Mining at a cash price of $6,000,000. The primary motivation for Tangshan's purchase of Zhengsen is for a special piece of drilling equipment that it believes will generate after-tax cash flows of $2,000,000 per year during the next 5 years. Zhengsen Mining has liabilities of $9,000,000 and Tangshan estimates that it can sell the remaining assets $6,500,000. Tangshan will use a 15 percent cost of capital for evaluating the acquisition. Based on this information, what is the net value of the special drilling equipment? Calculate the net value of a second alternative that would allow Tangshan to purchase a better quality asset for $12,000,000 that would provide a $2,600,000 in after-tax inflows for the next 5 years. Which alternative would you choose?

• A) $1,795,700, $3,284,400, both
• B) $1,500,000, $4,500,000, both
• C) ($1,795,700), ($3,284,400), neither
• D) ($1,795,700), ($4,500,000), neither

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Definitions:

Social Identity

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Steiner's Typology

A classification system proposed by Ivan Steiner that categorizes group tasks based on their nature, such as additive, disjunctive, conjunctive, and compensatory, to understand the impact of group interaction on performance.

Divisibility

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Quantity

The measure or number of units of a particular material or immaterial entity.