1. The most recent yearend financial data for company "A" is as follows: Revenues=$112 million; Depreciation=$7 million Operating income (EBIT) =$28 million Earnings after taxes=$12 million Total assets=$172 million interest bearing debt=$54 million Common equity=$40 million Shares outstanding=5.6 million Current price of the stock=$16.25 The company "B" is considering acquiring A. The investment bankers believe that the acquisition is good one even if B were to pay a premium of 40%. Presently A's cash ow is as follows: EBIT (operating profit) after taxes $17 Depreciation _7 Total $24 Less: capital expenditures 8 Incremental working capital _3 Free cash flow $13 Company believes that with synergy it can grow the operating income by 20% per year for the next 3 years and then 12% per year for the next 3 years. At the same time, it plans to hold capital expenditures and working capital additions to a combined increase of only $2 million per year. At the end of 6 years, B is advised by investment bankers the cash flow will probably grow at 5% per year. The cost of capital computed by the IBS is 15%. Certain comparable data of some recent M & A is as follow: Equity value to book value 2.9x Enterprise value to sales 1.4x Equity value to earnings 15.3x Enterprise value to EBITDA 7.8x As 8' CFO. would vou go ahead with the acquisition