Spreadsheet Exercise
Ram Electric Company is being considered for acquisition by Cavalier Electric. Cavalier expects the combination to increase its cash flows by $100,000 for each of the next 5 years and by $125,000 for each of the following 5 years. Ram Electric has relatively high financial leverage; Cavalier expects its cost of capital to be 12% for the first 5 years and estimates that it will increase to 16% for the following 5 years if the merger is undertaken. The cash price of Ram Electric is $325,000.
To Do
Create a spreadsheet similar to Table 18.3 to answer the following questions.
Determine the present value of the expected future ...
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