2 accounting questions 3

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Problem 3

Company A is considering acquiring Company B for $1,000,000 in cash. Based on market analysis, a targeted cost of capital for Company B is 12%. Company A has estimated that Company B can generate $ 90,000 of free cash flows over the next 12 years. Should Company A acquire Company B? Please defend your answer using Net Present Value analysis.

A website company generates revenues by selling annual subscriptions to its online service for $1,000/year, paid in full upon subscribing. It sells 10 subscriptions on January 1, 2012 and 10 subscriptions on July 1, 2012.

1. What is the company’s revenue for 2012?

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