HiHo IncIs Evaluating a Merger with the Following Cash Flows

question 46

Multiple Choice

HiHo Inc.is evaluating a merger with the following cash flows:
• Years 1 to 3 Incremental Cash Flows: $10 million each year
• Value of incremental cash flows after year 3 as of the end of year 3: $30 million
• Discount rate = 10 percent
What is the most HiHo should pay for this merger?

• A)$38.53 million
• B)$41.09 million
• C)$47.41 million
• D)$51.27 million

Discuss the concept of weak axiom of profit maximization (WAPM) and its implications.

Understand the distinction between fixed and variable factors in production.

Explain the principles of diminishing returns to scale and their implications on firm's profit.

Recognize profit maximization in different market structures and the role of government interventions.

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Definitions:

Foreclosure

A legal process by which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.

Debt

An amount of money borrowed by one party from another, under the condition that it is to be paid back at a later date, often with interest.

Principal Debtor

A principal debtor is an individual or entity primarily responsible for fulfilling the obligations of a debt or loan.

Surety

A person, such as a cosigner on a note, who agrees to be primarily responsible for the debt of another.