Problem:
Tax Investments, Inc., is considering a cash acquisition of Bubba Brewing Co. for $202 million. Bubba Brewing will provide the following pattern of cash inflows and synergistic benefits for the next 20 years. There is no tax loss carry-forward.
Years 1-5 6-15 16-20
Cash inflow (aftertax) $220,000 $240,000 $280,000
Synergistic benefits (aftertax) $20,000 $22,000 $40,000
The cost of capital for the acquiring firm is 12 percent. Should the merger be undertaken?
Please provide all steps.