Dominion Brands Inc., a packaged goods firm, has ten factories, total value of $150 million, that have been operating at an average capacity of 54%. The net income before tax and amortization (EBITDA) is $36 million annually. The company is considering the purchase of a regional manufacturer that went up for sale for $110 million. The assets of the acquisition would be broken up and sold and the production rolled into the Dominion facilities. It would provide an overall improvement in capacity to 70% and increase annual income to $47 million. The sale of assets, net of all transactions cost, would yield $40 million. Considering an investment horizon of 10 years with no residual value at the end and a cost of capital for Dominion of 10%, should the company go forward with the acquisition?

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The Answer of Dominion Brands Inc., a packaged goods firm, has ten factories, total value of $150 million, that have been operating at an average capacity of 54%. The net income before tax and amortization (EBITDA) is $36 million annually. The company is considering the purchase of a regional manufacturer that went up for sale for $110 million. The assets of the acquisition would be broken up and sold and the production rolled into the Dominion facilities. It would provide an overall improvement in capacity to 70% and increase annual income to $47 million. The sale of assets, net of all transactions cost, would yield $40 million. Considering an investment horizon of 10 years with no residual value at the end and a cost of capital for Dominion of 10%, should the company go forward with the acquisition?