nominal payback You estimate that the purchase price for this firm would be $200,000 and that additional net working capital would be need 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, advertising spending be increased by an incremental one time amount of $45,000 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, he recommends a standard 10% rate discount, but the one other time they looked at an acquisition of a smaller firm he used a 13% rate discount. You will want to select the most appropriate discount rate for this type of project.