4. Merger valuation and discounted cash flows When an acquirer assesses a potential target, the price the acquirer is willing to pay should be based on the value of: o The target firm's equity The target firm's total corporate value (debt and equity) The target firm's debt Consider the following scenario: Newtown Propane Inc. is considering an acquisition of Mammoth Pictures Inc., and estimates that acquiring Mammoth will result in incremental after-tax net cash flows in years 1-3 of $20 million, $30 million, and $36 million, respectively. After the first three years, the incremental cash flows contributed by the Mammoth acquisition are expected to grow at a constant rate of 4% per year. Newtown's current beta is 0.40, but its post-merger beta is expected to be 0.52. The risk-free rate is 4%, and the market risk premium is 6.10%. Based on this information, complete the following table by selecting the appropriate values. (Note: Round your intermediate calculations to two decimal places.) Value Post-merger cost of equity Projected value of the cash flows at the end of three years The value of Mammoth Pictures Inc.'s contribution to Newtown Propane Inc. Mammoth Pictures Inc. has 6 million shares of common stock outstanding. What is the largest tender offer Newtown Propane Inc. should make on each of Mammoth Pictures Inc.'s shares? $137.81 $172.26 $206.71