17. Please consider the following information for the next 4 questions (Q17 - Q20). TAMU Inc. is for sale and there is a price tag of $400,000. Your company, ABC, who is considering the purchase, has a beta of 1.4, the market is expected to have a 15% return and the risk-free rate is 4%. The forecasted free cash flows for the next 4 years for TAMU are 16500 (FCF1), 32000(FCF2), 0(FCF3), and 88000 (FCF4). The company is expected to grow at 4% indefinitely after that. Your company (ABC) has a debt/equity ratio of 2/4 and the applicable tax rate is 35%. ABC's cost of debt (before taxes) is 6%. What is the cost of equity for ABC company?

21% 19.4% 25% 15.4%

18. Continuing with the information from Q17, what is ABC's WACC? (hint: you can always plug in numbers that would represent the D/E ratio even when you don't have the actual debt or equity amounts given in a problem)

14.23% 14.93% 21.35% 21.13%

19. Continuing with the information from Q17, what is the terminal value for TAMUC Inc. for the 4th year (TV4)?

642,997.66 475,866.76 894,332.25 859,934.85

20. Continuing with the information from Q17, what is the NPV of purchasing TAMU Inc.?

positive 188,954.14 negative 337,516.09 positive 215,848.61 negative 215,848.61 negative 385,555.88