5. Merger analysis Free cash flow to equity (FCFE) approach Aa Aa Consider the following acquisition data regarding Wellington Industries and Purple Turtle Corp.: Wellington Industries is considering an acquisition of Purple Turtle Corp. Wellington Industries estimates that acquiring Purple Turtle will result in incremental value for the firm. The analysts involved in the deal have collected the following information from the projected financial statements of the target company. Data Collected in millions of dollars) Year 1 Year 2 Year 3 EBIT 6.0 7.2 9.0 Interest expense 5.0 5.5 6.0 Debt 35.1 37.8 29.7 Total net operating capital 107.1 109.2 11.3 Purple Turtle is a publicly traded company, and its market-determined pre-merger beta is 20. You also have the following information about the company and the projected statements. Purple Turtle currently has a $18.00 million market value of equity and $11.70 million in debt. The risk-free rate is 5.5% with a 7.60% market risk premium, and the Capital Asset Pricing Model produces a pre-merger required rate of return on equity r of 14.62%. Purple Turtle's cost of debt is 7.50% at a tax rate of 30%. The projections assume that the company will have a post-horizon growth rate of 6.00%. Current total net operating capital is $104.0, and the sum of existing debt and debt required to maintain a Sugge constant capital structure at the time of acquisition is $27 million. Session The firm has no nonoperating assets, such as marketable securities. Timeout