ABC is looking to acquire a distressed pencil company. ABC is able to pay cash to fund the acquisition. BDI CEO has asked you to evaluate the potential acquisition, and ultimately make a recommendation about weather ABC should purchase the distressed pencil company and if so, for what price. From your analysis and evaluation of the distressed company's financial statements, you put together the following table of sales forecasts (numbers in millions):

Pre-Merger Beta: 1.75

Pre-Merger % Debt: 35%

Pre-Merger Debt: $27.5 million

Pre-Merger Debt Rd: 9.5%

Tax Rate: 35%

	2018	2019	2020
Net Sales		34.5	42.5
COGS (75%)		25.88	31.88
SG&A		2.25	2.5
Interest Expense		2.61	3.6

You also gathered the following market information:

Risk Free Rate 2.4%

Market Risk Premium 5.0%

Your study of the market shows that with the merger and introduction of a new green pencil product sales will grow strongly for the next 2 years, but that overall the market is mature, and expected to grow at only a 2% constant rate after 2020. ABC would need to invest $500,000 in operating capitol in 2019 to build the required inventory to start sales.

1.) Complete an APV valuation analysis for the examined pencil company.

2.) Assume that the examined pencil company has 1.5 million shares outstanding. What is the maximum price ABC should pay per share? Would you recommend they offer this price (pencil company stock price is $18.75 a share)? Why or why not?

3.) Given ABC's strong balance sheet, they could likely recapitalize the pencil company with 70% debt at the end of 2 years (this amounts to $75.5 million of debt at the end of 2020 at the same interest rate). What is the value of the pencil company's equity with this capital structure?

***please provide spreadsheet screenshot with formulas:)