A group of investors is intent on purchasing a publicly traded company and wants to estimate the highest price they can reasonably

justify paying. The target company's equity beta is $1\mathrm{.}20$ and its debt$-$to$-$firm value ratio, measured using market values, is $60$ percent.

The investors plan to improve the target's cash flows and sell it for $12$ times free cash flow in year five. Projected free cash flows and

selling price are as follows.

To finance the purchase, the investors have negotiated a $$480$ million, five$-$year loan at $8$ percent interest to be repaid in five equal

payments at the end of each year, plus interest on the declining balance. This will be the only interest$-$bearing debt outstanding after

the acquisition. a$.$ Estimate the target firm's asset beta.

Note: Round your answer to $2$ decimal places.

Target firm's asset beta

b$.$ Estimate the target's unlevered, or all$-$equity, cost of capital $(K_A).$

Note: Round your answer to $1$ decimal place.

c$.$ Estimate the target's all$-$equity present value.

Note: Enter your answer in millions rounded to $2$ decimal places. d$.$ Estimate the present value of the interest tax shields on the acquisition debt discounted at $K_A.$

Note: Round intermediate calculations to $2$ decimal places. Enter your answer in millions rounded to $2$ decimal places.A group of investors is intent on purchasing a publicly traded company and wants to estimate the highest price they can reasonably justify paying. The target company$$s equity beta is $1\mathrm{.}20$ and its debt$-$to$-$firm value ratio, measured using market values, is $60$ percent. The investors plan to improve the target$$s cash flows and sell it for $12$ times free cash flow in year five. Projected free cash flows and selling price are as follows.

Year $($$ millions$)$

$12345$

Free cash flows $ $33$ $ $48$ $ $53$ $ $58$ $ $58$

Selling price $ $696$

Total free cash flows $ $33$ $ $48$ $ $53$ $ $58$ $ $754$

To finance the purchase, the investors have negotiated a $$480$ million, five$-$year loan at $8$ percent interest to be repaid in five equal payments at the end of each year, plus interest on the declining balance. This will be the only interest$-$bearing debt outstanding after the acquisition.

Selected Additional Information

Tax rate $40$ percent

Risk$-$free interest rate $3$ percent

Market risk premium $5$ percent

Estimate the target firm$$s asset beta.

Note: Round your answer to $2$ decimal places.

Estimate the target$$s unlevered, or all$-$equity, cost of capital $($KA$).$

Note: Round your answer to $1$ decimal place.

Estimate the target$$s all$-$equity present value.

Note: Enter your answer in millions rounded to $2$ decimal places.

Estimate the present value of the interest tax shields on the acquisition debt discounted at KA

$.$

Note: Round intermediate calculations to $2$ decimal places. Enter your answer in millions rounded to $2$ decimal places.

PLEASE NOTE: The three shown answers $($ a$,$ b$,$ and c$)$ are correct and the one that is unknown is the answer for d$).$None of the $20+$ responses to this test bank question that are available on Chegg have accurately shown how to answer d$).$ Something is a factor that is not being considered, such as the interest calculated on the declining balance.