solution

The R.Z. Frank Company may acquire Azii Car Leasing Company. Frank estimates that Aziz will provide incremental net income after taxes of $2 million in the first year, $3 million the second, $4 million the third, $5 million in each of the years 4 through 6, and $6 million annually thereafter. Wig to the need to replenish the fleet, heavier than usual investments are required in the first 2 years. Capital investments and depreciation charges are expected to be (in millions):

The overall required rate of return is 15 percent. Compute the present value of the acquisition based on these expectations. If you had a range of possible outcomes, how would you obtain the information necessary to analyze the acquisition?