3. Merger valuation and discounted cash flows Aa Aa When a merger takes place between two companies to form a single firm, the target company to operate as a separate identity. Consider the following scenario: Newtown Propane Inc. is considering an acquisition of Pirtucon Co., and estimates that acquiring Pirtucon will result in incremental after-tax net cash flows in years 1-3 of $7.0 million, $10.5 million, and $12.6 million, respectively. After the first three years, the incremental cash flows contributed by the Pirtucon acquisition are expected to grow at a constant rate of 6% per year. Newtown's current beta is 0.80, but its post-merger beta is expected to be 1.04. The risk-free rate is 5%, and the market risk premium is 7.10%. Based on this information, complete the following table by selecting the appropriate values: Value Post-merger cost of equity Projected value of the cash flows at the end of three years The value of Pirtucon Co.'s contribution to Newtown Propane Inc. Pirtucon Co. has 3 million shares of common stock outstanding. What is the largest tender offer Newtown Propane Inc. should make on each of Pirtucon Co.'s shares? $45.59 $56.99 $68.39 $68.38 Value Post-merger cost of equity Projected value of the cash flows at the end of three years The value of Pirtucon Co.'s contribution to Newtown Propane Inc. 10.68% 11.10% 12.38% 12.25% Value Post-merger cost of equity Projected value of the cash flows at the end of three years The value of Pirtucon Co.'s contribution to Newtown Propane Inc. $209.40 million $222.67 million $128.71 million $197.49 million Value Post-merger cost of equity Projected value of the cash flows at the end of three years The value of Pirtucon Co.'s contribution to Newtown Propane Inc. $170.96 million $136.77 million $222.25 million $205.15 million Icon Co has 3 million shares of common stock outstanding What is the largest ter hne