A US FIRM IS CONSIDERING THE ACQUISITION OF A MEXICAN COMPANY FOR...

25. A US firm is considering the acquisition of a Mexican company for $2 million. The cost of capital for the US firm is 10 percent. The Mexican company has expected cash flows of $90,000 per year. The synergistic benefits of the merger will add $30,000 per year to net cash flow. What is the present value of net cash flows from this merger? A. $1,500,000 B. $1,400,000 C. $1,300,000 * D. $1,200,000 E. $ 750,000 Solution: Present value = $90,000 + $30,000 = $1,200,000.