Atlantic Corporation is considering the purchase of the linerboard mill and corrugated box plants of Royal Paper for a total price of $260 million. The estimated incremental cash flows that would result if Atlantic acquired the facilities are presented below. Atlantic's marginal tax rate is 36% and their after-tax cost of capital is 13%. 1984 (in $ Millions) 1985 1986 1987 1988 1989 1990 1991 1992 1993 EBIAT 20.1 28.4 41.6 36.9 38.7 43.4 50.3 58.2 62.5 67.0 Depreciation Operating Cashflows 20.9 28.3 35 39.3 76.2 41.3 80.0 39.3 82.7 34.3 27.1 85.3 26.3 25.3 41.0 56.7 76.6 84.6 88.8 92.3 CAPEX (19.2) (30.5) (41.7) (10.2) (10.2) (8.2) (5.0) (6.2) (6.2) (5.0) (4.0) 00 (4.2) (6.0) (4.2) (5.0) NWC (9.0) (16.0) (10.0) (4.0) (5.0) Terminal Value 00 61.0 0.0 0.0 10.2 0.0 24.9 0.0 65.8 0.0 69.5 0.0 73.4 0.0 381.5 78.6 464.6 75.1 Free Cash Flows 12.8
Atlantic Corporation is considering the purchase of the linerboard mill and corrugated box plants of Royal Paper for a total price of $260 million. The estimated incremental cash flows that would result if Atlantic acquired the facilities are presented below. Atlantic's marginal tax rate is 36% and their after-tax cost of capital is 13%. 1984 (in $ Millions) 1985 1986 1987 1988 1989 1990 1991 1992 1993 EBIAT 20.1 28.4 41.6 36.9 38.7 43.4 50.3 58.2 62.5 67.0 Depreciation Operating Cashflows 20.9 28.3 35 39.3 76.2 41.3 80.0 39.3 82.7 34.3 27.1 85.3 26.3 25.3 41.0 56.7 76.6 84.6 88.8 92.3 CAPEX (19.2) (30.5) (41.7) (10.2) (10.2) (8.2) (5.0) (6.2) (6.2) (5.0) (4.0) 00 (4.2) (6.0) (4.2) (5.0) NWC (9.0) (16.0) (10.0) (4.0) (5.0) Terminal Value 00 61.0 0.0 0.0 10.2 0.0 24.9 0.0 65.8 0.0 69.5 0.0 73.4 0.0 381.5 78.6 464.6 75.1 Free Cash Flows 12.8
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 11P
Related questions
Question
- Calculate the NPV, IRR, and payback period for the acquisition and indicate what you think Atlantic should do.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 6 steps with 5 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning