Question 1136369: You are the General Manager at the Bicker, Slaughter, and Lynch Law Firm. There is an opportunity to buy
out a small law firm that was just started by a young MBA/JD, and you believe the firm can be grown and
become a lucrative part of your Firm. With help from your finance leader, you have estimated the following
benefit streams for this new division:
• You estimate that the purchase price for this firm would be $200,000 and that additional net working
capital would be needed in the amount of $60,000 in year 0, an additional $15,000 in year 2 and then
$15,000 in year 5.
• BSL usually spend about $275,000 per year in advertising. If you make this acquisition, you would
ask that advertising spending be increased by an incremental one-time amount of $50,000 in year 0
to publicize the firm’s expansion.
• Your finance leader has indicated that the firm has access to a credit line and could borrow the funds
at a rate of 6%. He also mentions that when he runs project economics for capital budgeting (such
as a new copier or a company car), he recommends a standard 10% rate discount, but the one other
time they looked at an acquisition of a smaller firm, he used a 12% rate discount. Obviously you will
want to select the most appropriate discount rate for this type of project.
• At the end of 8 years, the plan is to sell this division. The estimated terminal value (the sale and the
return of working capital) is conservatively estimated to be $400,000 of after-tax cash flow help.
Answer by ikleyn(52775)   (Show Source):
You can put this solution on YOUR website! .
I read attentively your post once - and did not find any question in it.
Then I read your post even more attentively for the second time - and did not find any question again.
So, I do not understand for what reason it was submitted to the forum.
Written in perfect English, it has no any Math sense and has no any reason to be posted to this forum.
You simply stole my time.
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