5. The Williams Warbler Company is contemplating acquiring the Acme Brass Company. Incremental cash flows arising from
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5. The Williams Warbler Company is contemplating acquiring the Acme Brass Company. Incremental cash flows arising from the acquisition are expected to be the following (in thousands):
Average of Years Cash flow after taxes $100 $150 $200 Investment required -50 -60 -70 Net cash flow $ 50 $ 90 $130 = - -
Acme has an all-equity capital structure. Its beta is 30, based on the past 60 months of data relating its excess return to that of the market. The risk-free rate is 9 percent, and the expected return on the market portfolio is 14 percent.
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