$1.$ Firm A is considering the acquisition of Firm B$.$ For Firm A$,$ PV $=$ $$2,000$ and N $=100.$

For Firm B$,$ PV $=$ $$1,000$ and N $=50.$ Proforma financial information for Firm AB is below; the appropriate discount rate for Firm AB is $15\%.$ After year $20,$ you will assume that the cash flow from year $20$ will then grow at $3\%$ forever. The tax rate is $40\%.$

Firm AB Years $1-5$ Year $6$ Years $7-13$ Year $14$ Years $15-20$

Sales $2,0002,4003,0003,0004,000$

Depreciation $200200150150180$

EBIT is assumed to be $40\%$ of Sales.

Interest $6060707010$

Capital

Expenditures $060007000$

Increases in

Working Capital is $10\%$ of the change in sales; invested the period before the sales increase.

Principal Payment $0001,0000$

$(12)$ a$.$ Calculate the PV of AB$.$ In your calculations, round your numbers to the nearest whole

number $($e$.$g$.1544\mathrm{.}78$ rounds to $1545).$ PVAB $=4727$

$(4)$ b$.$ Suppose the owners of B ask for a time $0$ cash payment of $$1,500.$ If A accepts, what will the split of the GAIN be $($in dollars$)?500$ to B and $1227$ to A

$(4)$ c$.$ Suppose the owners of B ask for an exchange of common shares, and they want to have a

$25\%$ ownership in the merged firm. What would be the COST and the NPV$?$ What exchange ratio are the B owners requesting? COST $=182$ NPV $=1545$ ER $=\mathrm{.}67$

$(4)$ d$.$ Suppose A agrees to the split of the GAIN in part c$,$ but wants to pay with shares of preferred stock. The preferred will have a $$1\mathrm{.}50$ per share dividend and the market requires an $8\%$ return on their preferred stock. How many preferred stock shares would A have to give B$?$