Problem:
The Clark Corporation desires to expand. It is considering a cash purchase of Kent Enterprises for $3 million. Kent has a $700,000 tax loss carry forward that could be used immediately by the Clark Corporation, which is paying taxes at the rate of 30%. Kent will provide the $420, 000 per year in cash flow (after tax income plus depreciation) for the next 20 years. If the Clark Corporation has a cost of capital of 13%, should the merger be undertaken?