16. (12) Yellowstone Models is considering purchasing a smaller competitor, Whiterock Models. Yellowstone's analysts project that the merger will result in the following incremental free cash flows, tax shields, and horizon values: Year Free cash flow Unlevered horizon value Tax shield Horizon value of tax shield 2 Assume that all cash flows occur at the end of the vear. Whiterock is currently financed with $20 million of debt at an interest rate of 10% with a debt to asset ratio of 40%. Its market- determined beta is 2.0. The risk-free rate is 4% and the market risk premium is 5%. Suppose Whiterock has no nonoperating assets. 1) What is the unlevered cost of equity of Whiterock? (5') 2) What is the estimated value of synergies of the Yellowstone-Whiterock merger? (7) - The End