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42) Firms A and B are competitors. Both have similar assets and business risks and are all-equity firms. Firm A has aftertax cash flow of

42)

Firms A and B are competitors. Both have similar assets and business risks and are all-equity firms. Firm A has aftertax cash flow of $10,000 per year forever and firm B has aftertax cash flow of $80,000 per year forever. If the two firms merge, the perpetual aftertax cash flow will be $95,000. If the appropriate discount rate is 12% what is the MOST B will pay for A?

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