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1 3 . You have been given the job of evaluating the following merger candidate. You have collected the following cash flow for the acquisition

13. You have been given the job of evaluating the following merger candidate. You have collected the following cash flow for the acquisition candidate for the proposed merger (in millions):
Projected cash flows for the target company:
Year 12345__ Thereafter per year
Cash flows now 8085105145180150
Additional cash flows with merger 6090100125150100
Total cash flows with merger 140175205270330250
Risk free rate of return 4.4%
Beta for the acquiring company 1.2
Beta for this target company .8
Market risk premium 5.0%
Pre-tax cost of debt 8.4%
Marginal tax rate 29%
Number of shares outstanding for the target company (millions)43
Current market price per share for the target company $65
Percentage of the acquisition financed with debt 40%
Percentage of the acquisition financed with common equity 60%
What is the after-tax cost of debt? 5.96%
What is the after-tax cost of common equity?
What is the weighted average cost of capital for this acquisition candidate?
What is the maximum price per share you are willing to pay for this candidate?
Based on the numbers above, would you pursue this candidate?

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