1.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):

Year 12345__

Cash flows now 8085105145180

Additional cash flows with merger 4090100125150

Total cash flowswith merger120175205270330

Risk free rate of return 3.5%

Beta for this project (the company after merging)1.5

Market risk premium 5.5%

Pre-tax cost of debt6.6%

Marginal tax rate22%

Number of shares outstanding for the target company (millions)55

Current market price per share for the target company$38

Percentage of the acquisition financed with debt 50%

Percentage of the acquisition financed with common equity50%

What is the after tax cost of debt?

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?