Carlson Airlines Case 32
Merger Analysis and Cash Flow
Purpose: The case demonstrates the use of capital budgeting techniques in a merger analysis. There are
a number of tax implications the student must consider. The student will also evaluate the impact of
terminal value on the analysis. This factor is frequently omitted in cases of this nature. The importance
of the growth rate is demonstrated as are the overall dimensions of the merger analysis.
Relation to Text: The case should follow Chapter 20.
Complexity: The case is of moderate difficulty and should require 45 minutes.
Solutions
1.
2.
3.
Year Projected
Cash Flow
10%
Discount
Rate
Present Value
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written consent of McGraw-Hill Education.
Sales $33,000,000
Cost of Goods Sold 19,440,000
Gross Profit 13,560,000
Year Projected Cash Floor (12% Growth)
2 9,287,040
3 10,401,484
1 8,292,000 .909 $7,537,428
2 9,287,040 .826 7,671,095
4. Sales Price $140,000,000
5. Total Proceeds
Sum of Present Value $81,858,876
Total Proceeds $127,792,876
The company should be purchased based on present value analysis.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.