4. N Corporation is considering the acquisition of A Corporation. A Corporation has earnings before interest and tax of $4.75 million, and asset replacement cost approximately equals depreciation. Efficiencies gained through the merger will reduce A’s operating costs by $1,820,000. Cash flows occur at year-end.

a. Assuming a 25 percent tax rate and a 12 percent required return, what is the value of A’s capital without a merger?

b. Assuming a 25 percent tax rate and a 12 percent required return, what is the value of A’s capital after a merger?