(a) XYZ Company is interested in acquiring ABC Company. ABC Company has one million shares outstanding, and a target capital structure consisting of 40 percent debt and 60 percent equity. ABC Companys debt interest rate is 6 percent. ABC Company has $10.82 million in debt. Assume that the risk-free rate of interest is 5 percent and the market return is 12 percent. Assume also that the tax rate applicable to ABC Company is 40 percent. What should the ABC Companys current stock price be, assuming that its current free cash flow (FCF₀) is $2.5 million, and is expected to grow at a rate of 6 percent per year and its beta is 1.5? (5 marks)

(b) The settlement price for a Treasury bond (contract value of $100,000) for December delivery was quoted as 100-16. Assume that the contract relates to a 10-year, semiannual payment, 8 percent coupon bond. What is the implied interest rate on this futures contract?