Marketing Concepts, Inc. is considering the acquisition of Management Theories, Inc. at a cash price of $1.5 million. Management Theories, Inc. has short-term liabilities of $500,000. As a result of acquiring Management Theories, Inc., Marketing Concepts, Inc. would acquire the copyrights to a national best-seller which would provide an estimated cash flow of $300,000 for the next five years. The firm has a cost of capital of 20 percent. The approximate net present value of this acquisition is
A. $500,000.
B. $480,800.
C. –$102,700.
D. –$1,102,700.
Answer:D
Marketing Concepts, Inc. is considering the acquisition of Management Theories, Inc. at a cash price of $1.5 million. Management Theories, Inc. has short-term liabilities of $500,000. As a result of acquiring Management Theories, Inc., Marketing Concepts, Inc. would acquire the copyrights to a national best-seller which would provide an estimated cash flow of $300,000 for the next five years. The firm has a cost of capital of 20 percent. The approximate net present value of this acquisition is
A. $500,000. B. $480,800. C. –$102,700. D. –$1,102,700.