12. Cougar Pipe Company is considering the cash acquisition of Red Wilson Rod, Inc., for $750,000. The acquisition is expected to result in incremental cash flows of $125,000 in the first year, and this amount is expected to grow at a 6 percent compound rate. In the absence of the acquisition, Cougar expects net cash flows of $600,000 this coming year (after capital expenditures), and these are expected to grow at a 6 percent compound rate forever. At present, investors and creditors require a 14 percent overall rate of return for Cougar Pipe Company. Red Wilson Rod is much more risky, and the acquisition of it will raise the company's overall required return to 15 percent.