Abbott Inc. is deciding whether or not to purchase CostelloCorp. Costello has the following financial information

Costello Corp
Income Statement
Revenues		$15,000,000
Cost of Goods Sold		$8,500,000
Gross Profit		$6,500,000
Operating Expenses
SG&A Expense		$3,250,000
Depreciation Expense		$1,650,000
Advertising Expense		$320,000
Shipping Expenses		$170,000
Operating Profit		$1,110,000
Interest Expense		$650,000
Income before Taxes		$460,000
Income Tax Expense		$115,000
Net Income		$345,000

Costello’s debts of $1,500,000 will be paid off at the end ofyear 5 resulting in no interest payments thereafter. In addition,Abbott knows that the equipment will need repairs and expect to pay$500,000 for repairs in Year 2 and another $750,000 in Year4.  

Regarding the business performance, Abbott believes that theycan increase revenues by 9% per year for the first three years,after which it will plateau at 3% growth per year. They believeCOGS will increase by 12% during each of the first 2 years and thenonly go up 2% per year afterward. However, to achieve this goalthey will increase ad spending to $500,000 in the first year andthen keep that same dollar amount in ad spending thereafter.Depreciation will be consistent throughout the foreseeable future.SG&A and Shipping expenses will both grow by 3% per year.Costello’s income tax rate is 25%. Abbott only wishes to forecastcash flows 8 years out as they believe there is too muchuncertainty thereafter.

Abbott has a desired rate of return of at least 9% on anyinvestments they make. Determine whether Abbott shouldacquire Costello Corp for the price of $8,500,000.