3) An acquirer is considering purchasing a target. The target has the following information: only debt and equity in the capital structure, 30% weight on debt, 8% pre-tax interest rate on debt, a 40% marginal tax rate.

a) What is the targets WACC? (For the cost of equity, assume a risk-free rate of 5%, a market risk premium of 6%, a beta of 1.4, and apply the CAPM)

b) Suppose the target has reported the following data (in millions of dollars):

	Year 0	Year 1
NOPAT		3.5
Operating Capital	1	1.5

How much is Free Cash Flow in year 1?

c) The acquirer believes the targets FCF will grow at 5% per year forever, after year 1. What is the Value of Operations of the target?

d) Suppose the target has $15.12 M of existing debt and 1 million shares of common stock outstanding. What is the most the acquirer should offer (per share) to acquire the target?