1 question (60%) The Prime Corporation is viewed as a possible takeover tar- get by TVC Enterprises, Inc. Currently, Prime uses 25 percent debt in its capital structure, but TVC plans to increase the debt ratio to 40 percent if the acquisition is consummated Prime's after-tax cost of debt is 10 percent, which should hold constant. The c after the acquisition is expected to be 20 percent. The current market value of Prime's debt outstanding is $30 million, all of which will be assumed by TVC. TVC intends to pay S150 million in cash and common stock for all of Prime's stock in addition to assu its debt. Currently, the market price of Prime's common stock is S125 million. Selected items from Prime's financial data are as follows: 2004 2005 2006 2007 THEREAFTER (MILLIONS) $425 65 40 50 $300 $335 $370 $400 Net sales Administrative and selling expenses Depreciation Capital expenditures 40 25 30 50 30 37 58 35 45 62 38 48 In addision, the cost of goods sold runs 60 percent of sales, and the marginal tax rate is 34 per- cent. Compute the NPV of the acquisition. Required: a. Compute NPV of the acquisition. b. Make decision to acquire or not. Explain