Sigma industries is considering purchasing Lambda Products in a cash transaction Sigma financial analysts Dave conducted an extensive amount of negotiation and due diligence and nave summarized the following financial information for management.
• Assets having a 10-year remaining life can be acquired for $22 million
• Assets are to De depreciated over their remaining life on a straight-line basis for Doth book and tax purposes
• Current liabilities of Lambda amounting to S3 million must be assumed by Sigma
• Lambda operations are expected to produce annual pre-tax cash Don of S7 million for the remaining 10 years of operation
• A16% return on investment is required by Sigma for acquisitions of this type
• Sigma's marginal Income tax rate is 35%
What is the net present value to Sigma of the Lambda acquisition rounded to the nearest thousand?
- A . $6, 921,000)
B. $712,000
C. $3,712,000